Weekly Review

Hey, when you're right, you're right. Yesterday I wrote:

"tomorrow I'm looking for at least a gain comparable to today's, maybe more."

So yesterday we gained 21 points and today we gained 30. In fact, we had quite a week, with the Dow posting its biggest gain in 10 weeks, as you can see in this weekly Dow chart.

The Dow ended the week up 2.2% and is now up 3.61% year to date. Also, the famous First Five Days of January closed higher as did the entire month. And now we have the first week of February, which is historically not as strong as January, also closing higher and by a good amount. So far, it appears that 2011 is living up to the pre-presidential year historical effect mentioned in The Stock Traders Almanac: the year before an election, the market is up an average of 10.5%, almost as much as the other three years in the four year election cycle put together.

And therein lies the immediate question. With the rally having gone on so long now, I have to wonder if it isn't about time for the correction everyone is calling for to finally kick in. Although I'm pretty confident the year will end higher, it's pretty obvious that it won't move up in a straight line. We'll address that in my next post.

Performance

Although the Dow was up 0.25% today, I somehow managed to lose 0.29%. Oh well - that happens sometimes. In any case, I ended the week up 2.38% thanks to strong performance earlier this week. I am now up 4.77% year to date which puts me easily on track to match my 32% return of last year. My Sharpe ratio stands at 0.33.

Trades

Today I closed out my position in SPIL at 7.00 for a 1 3/4 point gain and removed it from my low price/high yield portfolio. SPIL has had a nice run and its current yield of 5.77% puts it at the bottom of the list anyway. I will be looking for another tech name to replace it with and put that money back to work.

Selling pressure abated

Well apparently the declining VIX today trumped history and the weak overnight futures. I was expecting a flat to lower close today. Instead we got a modest 20 point advance. Although that wasn't much, it makes me a bit more optimistic about tomorrow. Right now (1:05 AM EST) all three futures are up by about 0.1% and the VIX still has room to go lower tomorrow. Never underestimate the power of the VIX as a predictor.

In addition, we stopped the steady daily decline in volume from the past four days. Also, all the indicators have come off their overbought levels that we saw just before last Friday's 166 point dump. And on the history side, we note that the fifth trading day of February tends to be positive.

Note also that we had a bunch of economic news out today and most of it was actually above expectations, but the market reaction wasn't as positive as I might have expected. Tomorrow we've got some payroll numbers and the all-important unemployment rate coming out. I think any positive news there should send stocks higher, particularly since we've crossed the 12K level convincingly now. So tomorrow I'm looking for at least a gain comparable to today's, maybe more. We'll see.

No trades today.

Sideways to lower

I find it interesting how much the action of the last three days looks like the action from January 24-26th: an up day, followed by a big up day, followed by a flat day. According to this pattern, tomorrow should be like January 27th, or another flat to slightly lower day. This theory is supported by the volume bars. Look at how the volume has been declining steadily for the last three days, suggesting we're running out of buyers at these levels. Also, tomorrow is Thursday, generally a weak day in the weekly cycle. And the third trading session of February is historically worse than the first two days too.

In addition, all three futures are lower right now (1:15 AM EST). The one counter I can find is the VIX. It did go lower today as I was expecting, but it has room to go still lower tomorrow. This should mitigate against a large drop in stocks. Plus we now have the 12K level to act as support. This is mirrored in the S&P, which though it closed slightly lower today, also held its psychological even number at 1300.

So all in all, I'm looking for a flat to somewhat lower day tomorrow. The market may spend a few days at these levels recharging its batteries before continuing the march upward. We remain in the upward swing trend going back to December.

No trades today. The TIE I dumped yesterday did in fact move lower today, so I was correct on that one.

Uptrend resumes

Yesterday I thought we had a good shot at moving higher, but I sure wasn't expecting the nice 148 point pop we got in the Dow and I really didn't think we'd break the 12K barrier today. But we did, closing at 12,040. Notably, the S&P also closed above its own psychological level of 1300. Both of these numbers now become support. But because we've now gotten fairly extended again from the daily Dow pivot at 11,867, I'm not looking for another big gain tomorrow. However, I do think we can still end tomorrow up a bit from here. There is no significant resistance now between here and 13,000, that being the spring highs of 2008.

There's not much guidance from the futures right now. After climbing most of the evening, they're all down just slightly at this point (1:30 AM). But the VIX, which peaked on Friday did in fact fall considerably since then, as I expected. Once again, as I mentioned, when the VIX hits its upper Bollinger band, look for higher stock prices in a day or two. Right now, the VIX is still less than halfway back down to its lower Bollinger band, or even the point it was at before last Friday (just under 16). So that implies that stocks still have room to run higher tomorrow. And finally, we note that the second trading day of February is historically a good one (though not as good as the first day). We'll see.

Trades

Today I added to my position in DHY at 3.04 for my low price/high yield portfolio. I sold my TIE at 19.28; it closed at 19.37. And I bought a bit of C at 4.87.

Trend unclear, upside favored

Yesterday I wrote that I was more optimistic about today becasue the VIX looked like it was going to reverse course. It was indeed unable to advance any further and we were rewarded with a 68 point gain in the Dow to close at 11,892, putting us back above the 11,867 resistance line. With the futures now up (at 2 AM EST) by 0.19% to 0.38% and the VIX looking like it will decline further tomorrow, I'm fairly confident that Friday's drop was not the start of "the correction" everyone is waiting for. All it seems to have done was relieve some of the overbought pressure that stalled our attempts to cross the 12K level last week. It looks to me like we may be gearing up for another attempt later this week, though probably not tomorrow just yet.

In the meantime, we're waiting for a new swing trend to become apparent though I should note that we still remain within the middle of the longer uptrend going back to the start of last December.

No trades today.

Maybe not so bad

I was really curious to see how the futures would act when trading resumed this evening. As expected, they gapped down on the open. Then something unexpected happened - they reversed and started climbing. And right now (1:30 AM EST) all three futures (ES, NQ, and YM) are actually positive, with the ES actually up a respectable 0.14%. In fact the ES is forming a nice hammer, and the up volume is quite extraordinary - much higher than last Friday. This all makes me believe that the market is not going to be spooked by the events in Egypt. For more clues on where we may be headed in the near term, let's look at the weekly VIX.Last week of course the VIX continued the rise it began two weeks ago. But it looks like it ended up forming a hanging man and it was unable to break out above its descending RTC channel as you can see in this weekly chart.

Zooming in to the daily VIX, we can see how last Friday's big pop took it right up to its upper Bollinger band. Over the last two years, every time this has happened, the VIX came back down either the next day or no more than two days. The one exception was back in May of last year when all the European debt business broke.

So right now, I'm a bit more optimistic about tomorrow than I was on Friday. I don't think we're going to attack the 12K level again right away, but I also don't see another big down day on Monday. Also, there's some news on personal spending for December coming out. Although expectations are higher, it wouldn't surprise me to see the numbers met or even beaten, judging by what I personally observed in stores last month. We'll see.

I was ready to short some ES this evening as insurance against tomorrow. Now I'm just going to wait and see. Tomorrow's action will determine if we're going to start a new trend or not.

The Red Sea

Whew! The 1 PM market heat map here (courtesy of finviz.com) pretty much says it all. Ugly ugly ugly. Today was one of those news-driven days that you couldn't see coming on any charts. I was right about the market closing lower if we fell below the daily pivot, but I certainly did not expect a 166 point cratering in the Dow. And that wasn't the worst of it. The S&P and Nasdaq were both hit even harder.

My only consolation is that I wasn't alone today in this sea of red ink. That and the fact that even though I took a 1.38% pasting today, that still barely beat out the Dow's 1.39% loss, and was better than the Naz and S&P's -2.48% and -1.73% respectively. But it's unfortunate that I was too late to the party this morning to get in on any sort of hedging activity. The best thing that can be said for today is that it mercifully ended at 4 PM. That and the fact that all the unrest in Egypt happened on a Friday. Hopefully, things will have cooled off over there by Monday.

So where does that leave us now? We blew right through the 11,867 support level like it wasn't even there before finally holding the line in the 11,850-11,820 area set in the middle of the month.Here's the weekly chart of the Dow. Although I'm by nature an optimist, I have to say I don't like the looks of this pattern. This week formed a dark cloud cover and today's action took us right out of the ascending RTC channel. Accordingly, I'm taking down the green arrow. Of further concern is that all of the weekly indicators appear to have topped. So despite today's losses, I don't think we're out of these particular woods yet. Monday's action should tell a lot about whether we can rally back or if this is the start of a larger correction.

Consolidation

Today gave us almost a carbon copy of yesterday, another doji day with a tiny 4 point gain in the Dow. The outlook for tomorrow is unclear. We're still riding the top of the RTC which places us a long way from any bearish signals and tomorrow is Friday. The last Friday in January is historically a good one. We took a second stab at the 12,000 level today and I expect another one tomorrow, although I still don't think tomorrow is the day we close above 12K. Given that all three futures are in the red at the moment (2:25 AM) with ES leading the way lower with a 0.21% decline, it's not looking like we're in for a big up day tomorrow.

Also note that we closed right on the daily pivot today - 11,989. A lot depends on which way we fall off this fence in early action tomorrow morning. A lower open could lead to a lower close, and vice-versa. Watch that number. I plan on skipping the early action as I always do.

No trades today. My new low price/high yield portfolio members, ZTR and ARR basically went nowhere today, which isn't a bad thing. I'm holding them primarily for their yield. That said, the LP/HY basket has done exceedingly well since I started it last summer, providing a 16% return on top of the dividends generated. Every member of this basket is up since I bought them.

Get ready for another push above 12K

Yesterday I wrote that the assault on the 12K level might take a few days and indeed today the Dow sent out a scouting party to explore the territory, reaching a respectable 20 points behind enemy lines at 12,020.5 before retreating to close at 11,985.4. So we have two doji days and the State of the Union and the Fed meeting out of the way. Now we can get down to business.

The past three sessions have established 11,980 as new support. The psychological 12K mark is still resistance but I sense that the wall is starting to crumble. With the ES and YM futures both up over 0.1% right now (1:15 AM EST, the pivot point having risen another 10 points today to 11,954 and the VIX still having room to fall before reaching its lower Bollinger band at 15.73, I see another attack on the 12,000 mark in the works.

We remain in the upper reaches of both the daily and weekly regression trend channels, so the swing trend remains upward. Once we cross the 12K level on a closing basis, there is no further meaningful resistance until 12,891, set all the way back in April of 2008 and the high of that year.

The only question left is when is this correction coming that everyone is talking about. The current rally is now 9 weeks old. Every other rally since 2008 (a year which saw no rallies at all) has lasted between 9 and 11 weeks. So I'm going to give this one another week or so. In the meantime, I'll be watching carefully for signs of toppishness. The RTC I use will not call the exact top but it will indicate with 95% certainty whether any decline is a trend change or just noise in the system.

Trades

My Intel (INTC) play from last week is perking along nicely, gaining almost another percent today to close at 21.75. Its daily chart posted an ominous looking evening star today, but the weekly chart is still looking good, so barring disaster tomorrow I'm going to let this one ride a bit longer.

Today we welcome two new names to the low price/high yield portfolio:

ZTR, Zweig Total Return Fund Inc., currently yielding a juicy 11.25%. I'm in at 3.53; it closed today at 3.52.

ARR, ARMOUR Residential REIT, Inc., which yields a whopping 18.58%. I bought at 7.73 today; it closed at 7.75.

I won't bore you with the complete technical analysis here but both of these names have been in decline and are now looking fairly oversold.

Another run at Dow 12,000 possible

Today's action ended up pretty much the way I called it yesterday, a pause, with the Dow losing just over 3 points. I was a bit surprised by the range though, hitting 11,898 intra-day before rallying back up to finish almost unchanged. The resulting doji clearly indicated uncertainty in the face of the double whammy of Obama's upcoming speech and the Fed meeting.

Anyway, now that the first of these events is out of the way it looks like the markets liked what Obama had to say on TV tonight, with the ES futures up 0.35% at this moment (12:45 AM EST) and the NQ and YM up almost as much. On this basis alone I'd say we're poised to take another run at the 12K level tomorrow. The only remaining wildcard is what pronouncements come out of the Fed but it doesn't sound like people are expecting anything dramatic.

Now let's look at the VIX. It hit its upper Bollinger band and formed a dark cloud cover yesterday. Sure enough, that bearish signal was confirmed with a red candle today. Note also that the VIX formed a double top intra-day today. And significantly, the VIX formed a bearish crossover in the short stochastic today, and that is always a very strong indicator. VIX lower, stocks higher.

And also take a look at the chart I posted yesterday from 2006, the last time we approached the 12K level from below. Doesn't today's action look a lot like what we saw back then? And finally note that the daily pivot point has now risen to 11,944 which means we're no longer as far away from it as we were yesterday, reducing the downward pull on the market. So all in all, the green swing trend arrow remains up and I'm fairly confident about tomorrow. Probably no big gains but almost certainly no big drops either. We may spend another day or two knocking on the 12K door before walking through. We'll see.

No trades today.

Big gains today, possible pause tomorrow

As I suspected yesterday, the attraction of the daily pivot was not enough to keep the Dow from gaining 109 points today to close at 11980.52, putting us within shouting distance of the 12K mark. Today was clearly a very good day indeed. So what's next?

First of all, today's gain propeled us so far above the top of the RTC, I may have to start a new channel. In fact, we're now approaching the top of the weekly RTC that goes back to the beginning of last December. From the current level, it would take a one day drop to 11,836, a 145 point tumble just to get us to a bearish setup. I just don't see that happening tomorrow, not with a Fed meeting starting. I expect tomorrow to be fairly quiet, pending the utterances from the Oracles at Delphi. Also, tomorrow night we have our Fearless Leader who will no doubt deliver a real rah-rah business-friendly pep talk that should help out the markets on Wednesday. I can almost guarantee he's not going to say "Now is not the time for profits". So that's the good part.

The bad part is that today's volume was noticeably lower than yesterday's, despite the big run-up in prices, implying that we're running out of buyers at these levels. Also, we now have the psychological 12K resistance level to deal with. These "even number" levels usually take a few days to cross successfully. Check it out - here's a trip down memory lane of the last time we crossed the 12K level (going up).

So given all of the above, I don't think we're going to see much of an advance tomorrow, if any, but I also don't see a big tumble (though I have no doubt we'll see a pullback of some sort within two months).

Weekly Review

Last Thursday night I was really expecting a bad day on Friday. While the Nasdaq did end the day down half a percent, the Dow, which is what I was looking at, was actually up 49 points. I was just plain wrong, but that's how it goes on options expiration days. Anyway, I'm happy to be wrong when the market ends higher.

Now looking at the upcoming week, there is nothing at all in the weekly chart to indicate anything but a continuation of the current uptrend. The Dow has been riding the upper edge of the weekly RTC since the beginning of December. And last week's volume was higher (in a four day week) than the full week before. Add to this the fact that right now (1:30 AM EST), all three futures are up by about a third of a percent. So all in all, though the correction everyone seems to be clamoring for may be coming, the charts don't show it arriving tomorrow. Of course, with a Fed meeting coming up, anything's possible, so I don't want to go too far out on a limb here, but I think we still have higher to go.

Note particularly that we closed last week at 11,872, thus finally breaking out over the 11,867 resistance level. With the momentum indicator at levels that leave a lot of room to run, this is further evidence that we may see higher this week. My only concern right now is that we closed on Friday pretty far away from the daily pivot currently at 11,804. When we get extended this far from the pivot, the Dow tends to be attracted back to it. I guess we'll have to see if the positives can overcome this one point tomorrow.

Performance

Though the Dow gained last week and I was up three days out of four, I still managed to lose 0.59% on the week, due entirely to some bad luck on Tuesday, when my low price/high yield portfolio took a 10% tumble. So this leaves me up 1.18% YTD which is OK, but below the Dow's 1.72%. One of my trading goals is to outperform the Dow, so I'm going to be looking into this this week.

Not Looking Good

I don't know - I have a bad feeling about tomorrow. Tomorrow is options expiration day and this has been a really really bad day for 10 of the last 12 years. I see nothing in the daily Dow chart to make me think 2011 is going to be any different. Also, all three futures are down at least 0.1% right now (1:15 AM EST). So today's little 2.5 point loss still keeps us in the middle of the rising RTC and therefore the swing trend remains intact.

However, the indicators are still all very overbought (the RSI is actually more overbought than it was on Tuesday) and today's down volume was higher than yesterday. Although the shape of today's candle is a doji indicating indecision, I'm really not looking for any gains at all tomorrow and would not be surprised to see a drop to the 11,778 area which represents minor support for the Dow.

Note also as I mentioned yesterday how the action of the last three days seems to be replaying what we saw starting January 6th. From the peak on the 5th, we had two declining dojis, very much like we saw today and yesterday. If this pattern plays out, look for a hammer tomorrow, though still ending lower.

The one bright spot is that the VIX hit its upper Bollinger band today and then retreated from that. Almost every time when this happens (going back over a year), the VIX goes lower within two days, implying stocks go higher. So if tomorrow is in fact lower, and especially if tomorrow replays the action of the 10th and forms a hammer, I'd expect to see a rally start early next week.

Trades

Today I bough a bit more ANH at 6.86 for my low price/high yield portfolio. It has pulled back over the last three days and reached some strong support, forming a bullish gravestone doji today. Although the LP/HY portfolio took a 10% hit yesterday, that still leaves it above the level it was at just six days ago. I think its downside from here is limited regardless of tomorrow's broader action.

Possibly lower soon

In an article on marketwatch.com today, we read Michael Gibbs, director of equity strategy at Morgan Keegan opining

“Markets don’t move in straight lines, and to me, it looks like the normal course of a little bit of profit-taking kicking in. Does it turn into that pullback that everyone is calling for? I don’t know"

You and me both. Yesterday I discussed the possibility of getting a doji or hanging man soon and sure enough, the Dow formed a doji/spinning top today. But that is not necessarily the reversal everyone is waiting for. Indeed, we remain above the middle of the ascending RTC, thus the uptrend is actually still intact, even though I got a bad feeling from today's action. I even tried to hedge my position with some SDS around mid-day and naturally the market started going back up. I got out at break even and then watched the charts gyrate aimlessly the rest of the afternoon.The closest thing I can figure is that today looked a lot like January 6th, and that was followed by two more down days.

And check out this ominous warning from The Stock Traders Almanac:

January Expiration Week Horrible Since 1999, Dow Down Big 8 of Last 11".

This coming Friday could be really bad. And it would only take a 30 point drop over the next day or two to generate a bearish trigger.

At least I was right with my call that the 11,867 level was going to be tough to crack. Tuesday's high was 11,859 and today's was 11,861, with both days finishing off those levels. Where tomorrow goes, I have no idea, but I'm not as optimistic as I was at the start of the week and I don't see us breaking the 11,867 level once again, which means there's not much upside from here. And as of this writing (1:50 AM), all three futures (ES, NQ, and YM) are down slightly. I may try again to get a decent entry into SDS tomorrow to do some hedging if we're not up meaningfully by 11 AM.

Uptrend continues

The purpose of stock market forecasters is to make fortune tellers look good.
- Warren Buffett

So it seems. I really did not expect the market to be up at all today, much less the impressive 50 point gain we saw in the Dow. I'm not too disappointed though as I ended the day up 0.8%, fueled mainly by the 9.27% pop in CSIQ, my last remaining "trade that turned into an investment", left over from last year. But apparently I'm not alone in expecting lower. Even our local newspaper had a short article to the effect that "markets may be lower today based on futures action the night before". Yup, they got fooled too.

And if that wasn't enough, today I got an email newsletter from the great Dr. Alexander Elder. In it, he writes,

In summary, the US stock market appears poised at razor’s edge. While the trend is clearly up, both on weekly and daily charts, the NH-NL is flashing red warning signs. It reminds us that bull markets do not move in straight lines, and this uptrend is ready for a pause.

(You can read more from Dr. Elder at elder.com)

But if we look at the RTC in the daily chart here, it still does not look like this "pause" is at hand. But I now think it's coming soon. Note that today's close brings us very close to the 11,867 resistance level marking the top of the "summer shelf" of 2008. I think at this point there's only 30 more points of upside before the market takes a rest for the assault on that line. So although I'm going to leave the green swing trend arrow in place, my feeling now is that it might be changing before the beginning of next week. We'll be looking for a doji candlestick or a hanging man.

Weekly Review

After a few days off, it's time to review last week and look ahead. The markets had a good week last week with the Dow gaining 115 points. In fact, all of January has been good so far, as you can see in this weekly Dow chart. Too good, some are saying. As you can see, all of th indicators are quite overbought. However, going back over a year now, the indicators spend a long itme in overbought territoray before any correction. The last two major corrections were preceded by indicators saying overbought for seven solid weeks. We have only been overbought for three weeks now. So while the market may be starting to look toppy now, I don't think it's quite time to jump ship just yet. The RTC in fact is looking quite healthy. It would take three weeks at current levels to get a bearish setup, or a one day drop to 11,651. I don't really see that happening any time soon.

That said, tomorrow being "Monday" (OK, it's Tuesday but it's the first trading day of a holiday shortened week) and all three futures currently being down by non-trivial numbers (ES, NQ, and YM down 0.31%, 1.08%, and 0.13% respectively), I'm expecting some downside action. BTW, I think the Nasdaq futures decline is due entirely to Steve Jobs apparently not feeling too well. While I wish the man well, is he really so important as to move the market that much?

So basically, I'm looking for a pause tomorrow, followed by upside continuation later this week. Thus, I continue to claim we're in a rising swing trend and the green arrow remains in place.

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