Continuation

Not really much to write about tonight. Yesterday I said

[I] would not be surprised to see a bit of a pullback.

and sure enough, we dropped 23.5 Dow points today but remain just below the center of the rising short-term RTC. Thus, the green arrow remains up. I see no sign of a major drop for tomorrow. And we still have about another 160 points to go before encountering any significant resistance. Contrariwise, we have a support point just 16 points below our current level of 11,732.

Trades

No trades today. My Intel trade from last week paid off nicely today after they reported good numbers. My gold trade in AUY didn't fare quite as well and I'm down a bit, but I'm going to let that one continue for a while. Everything else continues to run.

Uptrend confirmed

Yesterday I wrote

[I'm] looking for more upside over the next few days.

Well we sure got it today with an 83 point gain in the Dow. This number took us right back to the top of the RTC going back to the beginning of last December. Yesterday's bearish setup is now completely off the table. This is the value of the RTC - it keeps you from getting faked out by the sort of incremental declines we saw in the three days before the last two. My long hat is now pulled down over my ears. That said, after today's gains I'm not looking for much more tomorrow and would not be surprised to see a bit of a pullback.

Trades

Today I bought some more AOD AT 6.09 for my low price/high yield portfolio. The LP/HY portfolio has been doing great and has returned over 15% in capital appreciation since I started it last summer, in addition to its 10%+ average yield.

I also took a speculative flyer in Windstream (WIN) at 13.35. We'll see if that can blow some profits my way. Finally, the Intel (INTC) I bought last week has started to move the right direction, closing up 1.2% at 21.30 today.

No bearish trigger; uptrend resumed

Today's 34 point gain in the Dow brought us right back to the lower edge of the rising RTC I had abandoned yesterday, Since this is also a bullish candlestick pattern, I'm going to take a chance that the three days of declines before today were not in fact the start of a new downtrend. Clearly yesterday's bearish setup did not trigger today. So I'm returning the green swing trend arrow and looking for more upside over the next few days.

Trades

Today I bought some Frontier (FTR) at 9.42. It's looking oversold on a short-term basis and bounced off its 40 day MA today. It doesn't hurt that it's paying an attractive 8% dividend.

I also think I've found the pullback in gold I was waiting for. I bought AUY at 12.31. Actually, I should have picked this one yesterday as it was just breaking out of its downtrend and looking very oversold technically. But today's action just confirms that and I think it still has plenty of room to run.

Bearish setup but no trigger yet

With today's 37 point drop in the Dow we closed below the lower edge of the rising RTC for the first time since the beginning of December. The more adventurous will call the uptrend over at this point. Technically, we need to see one more down day to declare the uptrend dead.

But note the shape of today's action, forming a nice hammer candlestick. That is a bullish sign. And note that volume has been decreasing over the last three losing sessions, suggesting the bears are having a tough time driving the market lower. Also, the indicators are off their recent overbought levels and all three futures are up 0.1% to 0.18% right now (1 AM EST). Also, tomorrow is Tuesday, which is generally a good day for the market. And the VIX, which gapped up this morning, hit its daily upper Bollinger band before retreating to close at 17.54, its low for the day.

All of these factors may combine to keep us from going lower tomorrow. So the best I can do at the moment is to call the current swing trend over but not declare a downtrend yet. Note though that we are still well within a longer RTC uptrend going back to last year's lows in June. Right now, it wouldn't surprise me to see the market go higher tomorrow.

No trades today

Weekly Review

With the first week of 2011 now in the books, it's time to review what happened and look ahead a bit. Here, submitted for your perusal, is a chart of six months worth of the Dow in weekly candles. I've drawn in two different ascending regression trend channels. The first starts at the lows of 2010 at the end of June. The second, narrower, channel starts only at the first week of December, when Santa Claus was still just loading up his sleigh with profits for all the good little traders. Note that the Dow at its current level of 11,675 is right in the center of both channels.

Lately I've been reading a lot of contrarian-style chatter to the effect that the market is "due for a pullback" because "everyone is optimistic" and "the technicals are overbought". I don't know how true any of those are, but looking at the RTC channels, I don't see this big downturn coming in the next few days. Which is not to say it won't happen at some point. I just don't think that point is at hand yet. The RTC is good at verifying the end of a trend. It does not call the top ahead of time.

In fact, the daily Dow is not looking as good as the weekly chart. Although with two consecutive days of losses in the Dow we're still three days from a bearish setup if we get sideways action, a one day drop of just 16 points could do the same. In fact, Friday's action took us below the lower RTC line intra-day. And as of this writing (8:30 PM EST), all three futures are down slightly. Also, note that Monday's are typically not very good in recent times. So given this divergence, while I'm not all that confident about tomorrow, I have to leave the green swing trend arrow in place and take a wild guess that the week will end higher.

Also of interest is this quote from The Stock Traders Almanac:

The last 37 up First Five Days (of the S&P in January) were followed by full year gains 32 times, for an 86.5% accuracy ratio and a 14% average gain in all 37 years.

That's pretty impressive. And in 2011 the S&P closed at 1271.50 with a gain of 14 points, s gain of 1.1%. That's good enough for me. Add to the fact that 2011 is a pre-presidential election year (which historically outperforms) and I'd say we're looking for some more gains by the time Santa Claus comes back to town.

Performance

At the start of every year, the numbers are all a bit askew because we're just getting going, but for what it's worth I finished the first week of 2011 up 0.52%. That would be an equivalent annual run rate of 27.2%, which is in the ballpark of what I've gotten the last two years (a bit over 30%).