Daily Archives: June 30, 2010

Bear with Caution (by Pikertrader)

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Hey its Pikertrader, first guest post but have always commented on the site especially back in the day when Tim hid his love for AJC.  I remain cautiously bearish right now and have very tight stops for a few reason. 

Day ja vue:  Remember last July, when everyone was discussing the same head and shoulders pattern as they are now.  This famous pattern's neckline broke and all the bears cheered only to be beaten like a baby seal for the next 6 months as the market rallied on "green shoots", amazing bank earnings and just a economy that grew on good ole fashion productivity! (Bull$@#)

Picture 5

Second caution sign comes from the daily chart. MACD is showing some signs of bullish divergence, as it fails to make new lows with SPX. 

Spx630eod
Lastly there is a strong bearish sentiment in the market shown by the Put/Call Ratio.  And we know the Masters of the Universe don't let the crowd win.

Cpce630
So remain cautious because if this is another Head and Shoulders, fake you out and beat the bears pattern, it won't be fun being on the short side. But divergences and past patterns aren't crystal balls so anything could happen, like another 5%- 7% decline to the 980-950 level.   

For more daily charts and updates after you have read all of Tim's stuff go www.pikertrader.com

Heads, Shoulders, and Poisons

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Why is everyone expecting the head and shoulders pattern to fail, thus delighting bulls and mauling bears? Because it failed last summer, that's why.

And that's a pretty dumb reason to expect failure.

I mean, if people honestly expect everyone to get faked out, wouldn't a true fake-out be for the head and shoulders to fulfill its prediction? After all, "if it's obvious, it's obviously wrong", right? (Tim rolls eyes). I think people are over-thinking this, much like this clip:

Shorting Washed-Up Technologies

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Although I base my trading on charts, I get some of my ideas simply by observing companies which I think are past their prime and seeing what they look like from a chart perspective.

For instance, I've always thought Yahoo was a 1990s has-been. I'm flabbergasted they are as big as they are, frankly. Can you imagine what the morale must be like there? They've got a CEO who seems to drop F-bombs at every opportunity, and everyone who works there knows that those who ditched Yahoo and switched to Google have made themselves rich with stock options, while YHOO stock has been a complete dog.

Another similar stock I decided to look at – – and short – – is Research In Motion (RIMM). Simply stated, where I live, everyone uses Apple products. If you don't use an iPhone, people wonder what's wrong with you. Running around with a Blackberry, typing little emails with your little thumbs just makes you look like a dork. So RIMM has become ungodly uncool over the years, and that compelled me to take a serious look at the chart – – and short it.

There are other tech stocks in a similar vein that I'm short (Unisys, for instance), but I'd love to hear your ideas. What other tech stocks are yesterday's news and have been left behind by craftier, more innovative outfits?

Thank You For Q2

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Hi Everyone,

This is going to be just a quick thank-you note to all the Slopers. I am still up in the Sierras, typing this from the lodge (where WiFi actually works). It was actually sort of comic today, since I had to keep running from the little beach we have on the lake here back to my computer to check positions and close out the quarter.

Anyway, this is quite sincere – – I want to thank everyone for being here over the past quarter. When Q1 ended, I was pretty despondent. Things weren't going well. I was losing money. I was questioning myself as a trader. I was really starting to wonder what I was going to do.

Through a combination of persistence, deep thinking, fortitude, and gathering together on a daily basis with all those who participate in this board, I was able to turn things around. With all of its ups and downs – – including an ungodly high price set in April on the indexes – – this quarter has turned out to be a winner. I feel 500% better about life, about trading, and about my prospects.

And, even with one hand tied behind my back this week (being on "vacation"), I've been trading pretty decently. Now that we've broken the neckline, I'm not sure if it's going to be party-time or if this is just a cruel fake-out. I am, however, 100% short right now, with a large quantity of carefully-chosen positions.

My point, however, is to thank this community for its existence, particular the dozen or so crazy regulars (Leisa, Iggy, Market Sniper, Vicous, FIC, and all the rest of you lunatics). I owe a special thank-you to Leisa, who was especially helpful in the "dark times" of Q1.

You guys are terrific, and I hope you had a good quarter too.

– Tim

Clarifying Mid-Term Downside Targets (by Facesincabs)

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Clarifying Mid-Term
Downside Targets

 

Now that 1040 on the
$SPX has been violated (on Tuesday), I am beginning to clarify downside targets
for a possible downside move.  You will
notice that I am starting with a simple weekly chart using Elder’s Impulse Chart
settings (below).  As time progresses, I
may find a need to move down a time frame to a daily chart and/or change my
chart settings to refine and/or further clarify these targets.  I also like starting with the weekly chart
because it helps us focus on the big events and reduce noise.

 
(weekly)

Snap20

 

Using this weekly
chart, I would first point out that the tape action around the 1131 area
technically signaled the end of the rally by rejecting its 200 EMA (see arrow)
and then confirmed that rejection with a large bearish engulfing
candlestick.  Some might consider this a
right shoulder in a larger pattern, but I do not.  I basically see a “broadening top”.

 

I would add that the
action down from the top has clearly translated into a series of shock events
for the markets (including fat finger day). 
Personally, I have been trading the shock events rather aggressively for
two months now.  It is a strategy that
has worked well for me, but I would suggest that eventually those opportunities
will disappear.  I am not going to be
surprised by a light volume, rather boring, and meandering tape during the rest
of the summer.

 

Should fierce selling
visit us again and a major decline resume, my first downside target (and major
test of support) for the $SPX is now 975. 
This level not only corresponds with the August 2009 lows, but it also
represents a 20% decline from the April 2010 high.  My lowest downside target (at this time)
would be the 62% retracement of the recent rally near the 878 area (which also
corresponds with the July 2009 lows). 
Given the light volume expected over the summer, I would note that a
move down could take several months.

 

Comments About My
Perceptual Basis

 

Why is the 975 area
important to me?  Because a decline
greater than 20% would invalidate the currently perceived bull market.  There are still technicians out there that
see “their” bull market continuing due to the large move made in the
March 2009 rally.  Therefore,
psychologically 975 is an important level to violate in the bull vs. bear
debate.  I would similarly note that a
market decline could easily end just above 975 (e.g., saving bulls from
destruction of their perceived bull market). 
So …. if you think that 1040 has been a difficult area to break, just
wait till the $SPX gets near 975.

 

Finally, it may also
be important to clarify here that my general personal perception is that we are
in a secular bear market (going back to 2000 or so).  Therefore, the March 2009 rally is actually a
counter trend rally, and we are currently in the process of resuming the
broader secular bear market.

 

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Some Relief for Energy?

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[Editor’s note:  Please see important note below on next post timing]

I think the bull run nonsense of 2009/early 2010 is totally kaput, but I also think there are so many battered issues that a bounce of some note is in the cards before long. Energy and retail seem like two sectors prone to the most relief.

Looking at the DIG (the ultra-bullish on energy) is a somewhat compelling case. For myself, I only have one large long now – XLE – but otherwise it’s shorts across the board.

Picture 2

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Island Reversal on BP

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(editor’s note:  see bottom of post for important information)

I mentioned the idea of buying BP yesterday. It’s up about 5% or so since yesterday’s post.

The notion is even stronger today, because BP exhibited a beautiful island reversal pattern. This is usually a very strong buy signal.

Picture 1



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