More upside possible

Well how do you like that? The Magic 8 Ball was right on the money. We were rewarded today with a 191 point jump in the Dow. It's still too soon to call this a trend, what with all the up-down-up-down action recently, but I will note that we hit several important numbers today.

First, the opening and low of the Dow were identical and equal to the center line of the long term rising weekly RTC. Second, we closed above the 12,225 resistance shelf established last month. And third, we exited out the right side of the descending daily RTC from last month. All of these are bullish indicators. Note also that the classical indicators are all lower than they've been in well over a month and appear to have bottomed and started turning up. Also bullish.

However, after today's big run up, I'm not expecting the same tomorrow. The pattern lately after big pops has been a period of consolidation for a few days before resuming any meaningful price movement. Still I'm liking this chart more than I was two days ago. We'll see.

No trades today.

Riding the See Saw

What a roller coaster today. The Dow crossed its zero change level around a dozen times before finally closing up just under 9 points. Nice for the day traders, not so nice for swing trading. Up, down, up, down - here's my new forecasting tool. It should work at least as well as I've been doing the last few days.

One thing seems clear, the support at 12K held firm (as did the 1300 level on the S&P) as the bears were unable to knock 'em any lower today. We have also gone from quite overbought to fairly oversold in the last two weeks. And all three futures are up right now (1:15 AM). The ES in particular is up avery respectable 0.75%, with NQ and YM not far behind that. And the VIX put in a big tall doji signaling a possible reversal. So let me turn the Magic 8 Ball over and see what it says. Hmm, "market may go higher Thursday". That's all I got.

Trades

When I checked the market when I got up, I was up a bit. When I checked back after breakfast, I was down big. After lunch I was up again, and so on. I finally did end up losing 0.27% today, but largely because NRF, one of my low price/high yield names announced a secondary after hours today and took a dump.

I'm in a decent profit position in NRF from 3.13 last summer and it's had a good run. I may start cutting back on it soon, especially since it is now the low yielder in the LP/HY portfolio. To quote R. Lee Ermey, "I'll be watching you!"

I did pick up some TIE at 18.02. I also tried buying some AUY but that proved to be a mistake, so I took a small loss and got back out.

Crossroads

Wow, I sure wasn't expecting today's 168 point drop in the Dow. Even upon further review, as they say, I still see nothing in yesterday's technicals that could have foreseen this. But it is what it is. The uptrend I thought was starting is hereby canceled, and after just one day, I'm taking the green trend arrow back down. Honestly, I now have no clue where the market may be headed in the near term.

In fact, today's nasty surprise leaves us at an important crossroads. Tomorrow may well determine if we're actually in a longer downtrend that began on February 22nd, or if the 12K support level can hold once more as it did twice last week and send us back higher. On the downside, the futures are all trading lower by 0.2 to 0.3% right now (1:30 AM EST). And even worse, we are now nearly down to the lower edge of therising ES weekly RTC that goes all the way back to last August. Dropping below current levels would be quite a bearish sign.

All in all, it feels like Mr. Market's mood has suddenly turned glum. Whether it's the price of oil, civil war in Libya, Bernanke's commentary, or whatever, I'm taking the long hat off and reaching for the short hat.

In fact, if this keeps up I'm just going to take a vacation. This is not my kind of trading environment. Especially if we're up tomorrow. I don't like it when I get out of sync with the market and I just hate getting whipsawed. Better to just stand aside until things calm down a bit.

Trades

Today I got out of my WIN trade at 12.63 for a small profit. I'm slowly increasing my cash position and am now 39% in cash, my highest level in quite some time now. I also bought a 20 put as insurance on my holdings in GE. That's a stock I don't really want to sell, but it's looking like it may go lower still. It has now broken under a rising weekly RTC channel.

Still on track for higher

Over the weekend, I called for the Dow to go higher today and sure enough, we got a nice 96 point advance. My long hat fit quite nicely today.

Because of the dramatic decline from last week, I added the Fibonacci retracements to today's chart. Notice how the Dow advanced to the 0.618 Fibonacci retracement literally on the dot, at 12,235, the high for the day, before closing at 12,226. There was also some minor resistance at this level the last time we encountered it (on February 8th) but this time we're not nearly as overbought as we were then so I don't think that's going to present much of an obstacle tomorrow.

Then there's our friend the VIX. It continued its decline today and shows no sign of reversing just yet. Plus tomorrow is the first day of the month, traditionally a strong day. The Dow has been up 9 of 11 on March 1st from 1996-2006, according to The Stock Traders Almanac.

Finally, given the fact that all three futures are up convincingly right now (1:30 AM EST) with the ES leading the way up 0.34% and no new catastrophes out of the Middle East, I'd say we still have room to run tomorrow. And since today's green candle was entirely outside the descending RTC from last week, I'm going to put the green swing trend arrow back up.

Trades

I unloaded my Intel today at 21.43. On a day where the rest of the market was up, INTC was down. I don't particularly like its daily chart so I decided to take some profit rather than holding out for more and ending up with nothing. I just wasn't feeling the love.

My new spec play WIN meantime continued its advance on higher volume to close at 12.54 in the regular session and then popping to 12.70 in after hours.

I finished February with a decent 5.48% gain. I'm actually happy to see anything north of my long term average of 2.5% per month. We'll see if March can roar in like a lion.

Still on track for Monday

At 1:10 AM, all three futures are down, but only slightly, with the ES losing just 0.09%. And it has been trending higher since 8:45 this evening. And no new disasters out of Libya to this point. So I think I'm going to stick to the calls I made in my last post. There's still no swing trend that I can figure out, but I'm reaching for my long hat.

Quote of the Week

"Most people lose money trying to avoid losses."

This is from a webinar sponsored by Linda Raschke that I attended last week. I'm sorry, but I don't seem to have the name of the presenter handy at the moment. But it's a great quote and well worth remembering.

Sometimes the safest course of action is the most dangerous. As General Patton said, "L'audace, toujours l'audace".

Weekly Review

The holiday-shortened week was pretty awful by any account. It did have one benefit though: the drop of over two percent for the week took some of the froth out of the market and helped clear the air like a thunderstorm on a steamy summer afternoon. All the daily indicators, which were looking overbought at the start of the week, are now looking more oversold than any time since last August.

But that doesn't really show up on this weekly chart of the Dow. What's of note here is that the Dow remains in a primary uptrend that goes back to June 28, 2010. That's quite a run. And even with this week's big drop, we remain in the upper half of the rising regression trend channel. But if you look at the last two times we had a big drop in this channel, the following two weeks drifted lower.

But Monday is the last trading day of the month and Tuesday is the first day of the following month. Both of these are historically strong, and as I said, the daily chart is looking oversold now. So my strategic outlook for next week would be higher prices in the early part of the week, possibly followed by declines later on. A rise on Monday is also supported by the daily candles: a hammer on Thursday and a bullish engulfing pattern Friday. That's a strong reversal signal.

Of course, this all assumes there's no new news out of Libya. Barring any drastic changes over there, it appears that the Short Attention Span Theatre that is the stock market has moved on.

Finally, with three days up, three days down, one day up and the expectation of another day up on Monday, there is no swing trend so I've removed the red arrow and put up the "no clue" symbol. As a reader mentioned yesterday, the day traders love this sort of environment. It's less than ideal for swing trading.

A Note on the VIX

I've been focusing on the VIX recently. It looks like my theory about the correlation between the VIX and the market held nicely this week. The VIX took a big jump on Tuesday and Wednesday. Then it started to fall on Thursday. The S&P continued to fall Thursday but rose exactly one day after the VIX started falling. The daily VIX still has room to fall, supporting my expectation of higher stock prices on Monday.

A Note on Oil

The big noise this week was all about oil, due of course to the Libya situation. Does anyone remember the summer of 2008 when oil went exponential peaking that summer around $147 a barrel? Shortly before then, someone (I think is was GS) came out with a prediction that oil would hit $200 by fall. And we all know how that ended. Well, this past week I heard no fewer than three people predicting that oil is going to $200. That does it - the run up in oil is now officially over.

Performance

Although the markets were terrible this week, I still managed to end the week almost break even, finishing with just a 0.17% decline on the week. I managed to post some good results on Thursday and Friday, nearly offsetting my losses earlier in the week. I did take one lesson away from this week and that is to listen to my own forecasts. By Monday night, anyone could have seen Tuesday's drop coming a mile away. I really try not to play the "woulda coulda shoulda" game, but I shoulda taken out a few short contracts in ES at that point.

If I'd been wrong and the market had gone higher, I would simply have been left no worse off than before. And if I was right and the market tanked Tuesday, I could have insulated myself from some demoralizing losses. That's a no-lose situation.

Year to date, I am now up 8.11%; the Dow is up 4.77%. My maximum winning streak is four days and maximum losing streak is two days. Sharpe ratio is 0.33 and win/lose ratio by day is 1.92.

As expected, my spec play in WIN was up on Friday. It goes ex-dividend lat next month but I may not hold it that long. For now, it's moving the right direction and still has room to run.