Aug 2008
Market Analysis: Economy Indicators Clear As Mud / Gustav Threatens Oil / Site Updates
30/08/08 06:28 PM
This market has been quite uneventful as of late
except for that much better than expected GDP number,
which does deserve some notice. August is
historically a low volume month, although this August
will go down in the books as one of the lightest
volume months in years. That just goes to show how
unguided this market is. Hopefully we will see some
traders come back into the market this next month.
With regards to the charts, well, there’s really not much to say. Let’s see what last week brought us:
The resistance continues to be at that 11,650-11750 level. Until we see a convincing move above that area with good buying volume, we simply do not believe this market has significant upside. That being said, however, we have tested that resistance level more than five times in the past month, not to mention we finally broke above that 50-day moving average and closed above it last Friday. Could this market actually move higher? Possibly. Again, the volume is an issue, but that 200-day moving average could be within reach in the next few weeks. We will let you know if that change in trend occurs. Until that happens, though, the trend is down.
For the Nasdaq, the picture is pretty clear: that 200-day moving average is providing hefty resistance and based on Dell’s earnings last week, we continue to believe the trend is lower. However, we do believe that 2200 will continue to provide as support for the next few weeks.
Similar to the DJIA, the SPX has been rangebound for the past month or so and from a technical perspective, we would not be surprised to see a small rally higher. That being said, however, there is very little fundamental evidence to support a big move higher, apart from that better than expected GDP number, which was fueled to some degree by the “stimulus checks” of our very generous government. However, Hurricane Gustav may be enough to send oil skyrocketing again, leading to a lower stock market this week.
The economic indicators are all very contrarian at the moment, making it very difficult to trade effectively. We really need the big money to come back into play to give us a better idea of where the markets may trade in the next few weeks. And really, until that happens, we will be reluctant to make any trades in this market.
The financials were one bright area last week. That $19.75 area that we mentioned last week held beautifully as support. The XLF actually managed to close above that 50-day moving average, which is actually fairly bullish. And as if that wasn’t enough, the volume over the last week was actually just as bullish, especially in the options markets. Option activity swelled last week as over 935,000 call contracts (twice the norm) and 213,000 put were traded. A break above $23 on good volume leads us to believe that the 200-day moving average is very reachable, but not breakable. The financials have been leading this market as of late, and we look for that scenario to continue. As a trade, however, we will wait for this confirmation of short term trend change in order to be able to put our money on something more definite.
Well if you believe that the US Dollar is finally breaking out of that three-year long downtrend, which we do, then the fundamental trade on gold is lower without question. Technically, Gold has been rallying from that $77 level on very low volume (bearish), not to mention that the resistance level at $83.5 has already been tested once in a failed break through attempt. Ideally, we would initiate a short trade at $83.5 on the GLD chart and look to test that $77 support level.
The XHB Homebuilder’s Index has been battling that 200-day moving average for about three weeks now without any success. Also, there is clear technical resistance at that $19.5 area. Unless we see a break above that area on heavy volume, the trade is lower.
And finally, we have the oil chart. Lot’s of interesting stuff going on with this one. That year-long trend live remains in tact and now we must look at shorter term support/resistance levels to get an idea of where oil is headed in the next few weeks. Currently, we believe that $100 level is definitely within reach, especially as this hurricane makes its way towards Louisiana. Should Gustav seriously impact Gulf Coast oil operations, the USO could easily see that 107 level as the next price target in the coming weeks.
The point is that we really want to see some big players come back into the market before we can start placing trades again. There are simply too many indicators are contradicting each other at the moment and too many factors could send the market up or down triple digits. Once we see something to confirm the short term direction of this market, we will updated you all with that information as it becomes available. Remember, sometimes the best trade you can make is no trade at all.
Now, onto other news. Many of you may be familiar with the stock market website, UpDown. They recently held a three month long summer trading competition, which we took part in. Out of 6,149 contestants, we finished in 14th spot with a 55.02% gain. Our username is andy07cole and you can check out the contest here: http://www.updown.com:80/contest-home.do?id=3
On another note, we will now begin updating the portfolio performance page as the trades happen. The format will be similar to the way it was over at So-Cal Options Trader in that we will post on the trading desk immediately following the opening or closing of a position. Once the gain/loss is realized, we will update the portfolio performance page in a nice table friendly format so that our results are easily accessible to everyone. This was a very popular feature over at So-Cal Options Trader and we hope you’ll find it helpful and informative to your trading.
Enjoy your Labor Day holiday.
-Andy and Sul
With regards to the charts, well, there’s really not much to say. Let’s see what last week brought us:
The resistance continues to be at that 11,650-11750 level. Until we see a convincing move above that area with good buying volume, we simply do not believe this market has significant upside. That being said, however, we have tested that resistance level more than five times in the past month, not to mention we finally broke above that 50-day moving average and closed above it last Friday. Could this market actually move higher? Possibly. Again, the volume is an issue, but that 200-day moving average could be within reach in the next few weeks. We will let you know if that change in trend occurs. Until that happens, though, the trend is down.
For the Nasdaq, the picture is pretty clear: that 200-day moving average is providing hefty resistance and based on Dell’s earnings last week, we continue to believe the trend is lower. However, we do believe that 2200 will continue to provide as support for the next few weeks.
Similar to the DJIA, the SPX has been rangebound for the past month or so and from a technical perspective, we would not be surprised to see a small rally higher. That being said, however, there is very little fundamental evidence to support a big move higher, apart from that better than expected GDP number, which was fueled to some degree by the “stimulus checks” of our very generous government. However, Hurricane Gustav may be enough to send oil skyrocketing again, leading to a lower stock market this week.
The economic indicators are all very contrarian at the moment, making it very difficult to trade effectively. We really need the big money to come back into play to give us a better idea of where the markets may trade in the next few weeks. And really, until that happens, we will be reluctant to make any trades in this market.
The financials were one bright area last week. That $19.75 area that we mentioned last week held beautifully as support. The XLF actually managed to close above that 50-day moving average, which is actually fairly bullish. And as if that wasn’t enough, the volume over the last week was actually just as bullish, especially in the options markets. Option activity swelled last week as over 935,000 call contracts (twice the norm) and 213,000 put were traded. A break above $23 on good volume leads us to believe that the 200-day moving average is very reachable, but not breakable. The financials have been leading this market as of late, and we look for that scenario to continue. As a trade, however, we will wait for this confirmation of short term trend change in order to be able to put our money on something more definite.
Well if you believe that the US Dollar is finally breaking out of that three-year long downtrend, which we do, then the fundamental trade on gold is lower without question. Technically, Gold has been rallying from that $77 level on very low volume (bearish), not to mention that the resistance level at $83.5 has already been tested once in a failed break through attempt. Ideally, we would initiate a short trade at $83.5 on the GLD chart and look to test that $77 support level.
The XHB Homebuilder’s Index has been battling that 200-day moving average for about three weeks now without any success. Also, there is clear technical resistance at that $19.5 area. Unless we see a break above that area on heavy volume, the trade is lower.
And finally, we have the oil chart. Lot’s of interesting stuff going on with this one. That year-long trend live remains in tact and now we must look at shorter term support/resistance levels to get an idea of where oil is headed in the next few weeks. Currently, we believe that $100 level is definitely within reach, especially as this hurricane makes its way towards Louisiana. Should Gustav seriously impact Gulf Coast oil operations, the USO could easily see that 107 level as the next price target in the coming weeks.
The point is that we really want to see some big players come back into the market before we can start placing trades again. There are simply too many indicators are contradicting each other at the moment and too many factors could send the market up or down triple digits. Once we see something to confirm the short term direction of this market, we will updated you all with that information as it becomes available. Remember, sometimes the best trade you can make is no trade at all.
Now, onto other news. Many of you may be familiar with the stock market website, UpDown. They recently held a three month long summer trading competition, which we took part in. Out of 6,149 contestants, we finished in 14th spot with a 55.02% gain. Our username is andy07cole and you can check out the contest here: http://www.updown.com:80/contest-home.do?id=3
On another note, we will now begin updating the portfolio performance page as the trades happen. The format will be similar to the way it was over at So-Cal Options Trader in that we will post on the trading desk immediately following the opening or closing of a position. Once the gain/loss is realized, we will update the portfolio performance page in a nice table friendly format so that our results are easily accessible to everyone. This was a very popular feature over at So-Cal Options Trader and we hope you’ll find it helpful and informative to your trading.
Enjoy your Labor Day holiday.
-Andy and Sul
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Market Analysis: Haven’t We Seen This Before?
24/08/08 11:13 AM
Again, it’s been choppy, unguided trading, as these
markets continue to look for some sort of direction.
However, the resistance levels on the major indicies
remain intact, and we’ve had no real fundamental
occurences within the economy that lead us to believe
these resistance levels will be broken. For those
that have executed trades at or near these resistance
levels, there has definitely been money to be made on
the short side. The charts tell the story fairly
clearly:
Resistance at that 11,650-11,750 area that we’ve been talking about for the past month. Unless something crazy happens this week, look for that resistance level to hold. There is also a short term support level forming at the 11,300 level if you are gutsy enough to play it as one. We are not.
That 200-day moviing average provided some hefty resistance for the Nasdaq bulls last week. We mentioned in our previous post that low volume rallies testing 200-day moving averages often end to the downside, and we believe that the trend for the Nasdaq will indeed be lower into next week.
With regards to the financials, nothing new here. Ressistance at the $22-23 area and it looks as thoguh a short term support area may be forming at the $19.7-$20 area. Again, this is not a trade for the faint hearted.
With regards to the homebuilders, frankly, we see absolutely no evidence, fundamental or technical, to lead us to believe that the bottom is in. The 200-day average is providing as excellent resistance and just above that, there is another resistance level at around $19.8-20. The path of least resistance for the homebuilders is clearly down.
And what a response we got from the bulls last week as buyers came in to defend that trendline. We said there would be a battle last week, and that’s exactly what we got. Also of note, Goldman Sachs put a price target on oil for $149 by the end of the year and we think they may be on to something here.
And how ‘bout that GLD chart. We got that last resistance “kiss” before moving dramatically lower. Look for a much weaker GLD chart into the next few months.
And that’s about it from here. As a sidenote, we’ve added to the links section in the website. We’ve found Mish’s Global Economic Trend Analysis to be especially excellent, a site based on hard facts rather than the CNBC permabull nonsense that so often floods that channel.
-Andy and Sul
Resistance at that 11,650-11,750 area that we’ve been talking about for the past month. Unless something crazy happens this week, look for that resistance level to hold. There is also a short term support level forming at the 11,300 level if you are gutsy enough to play it as one. We are not.
That 200-day moviing average provided some hefty resistance for the Nasdaq bulls last week. We mentioned in our previous post that low volume rallies testing 200-day moving averages often end to the downside, and we believe that the trend for the Nasdaq will indeed be lower into next week.
With regards to the financials, nothing new here. Ressistance at the $22-23 area and it looks as thoguh a short term support area may be forming at the $19.7-$20 area. Again, this is not a trade for the faint hearted.
With regards to the homebuilders, frankly, we see absolutely no evidence, fundamental or technical, to lead us to believe that the bottom is in. The 200-day average is providing as excellent resistance and just above that, there is another resistance level at around $19.8-20. The path of least resistance for the homebuilders is clearly down.
And what a response we got from the bulls last week as buyers came in to defend that trendline. We said there would be a battle last week, and that’s exactly what we got. Also of note, Goldman Sachs put a price target on oil for $149 by the end of the year and we think they may be on to something here.
And how ‘bout that GLD chart. We got that last resistance “kiss” before moving dramatically lower. Look for a much weaker GLD chart into the next few months.
And that’s about it from here. As a sidenote, we’ve added to the links section in the website. We’ve found Mish’s Global Economic Trend Analysis to be especially excellent, a site based on hard facts rather than the CNBC permabull nonsense that so often floods that channel.
-Andy and Sul
Market Analysis: Riding A Wave Of Worry
17/08/08 01:04 PM
Again, it’s really been a trader’s market as of late.
For the trades that have been made, they’ve been
quick and dirty, in and out, simply because it seems
like every day brings some new data or news that
force the markets in a different direction. Let’s
look at where we stand going into next week:
Resistance on the DJIA continues to be at that 11,750 area. We actually managed to break above that level a few times last week, only to be held back by the 50-day moving average. Volume was pretty pitiful last week, but that was sort of expected really, as this market looks for some sort of direction. Unless some really excellent economic data comes out next week, the trend is lower.
The Nasdaq has been the strongest index of the past few weeks. In fact, it has actually managed to close above its 200-day moving average, which is somewhat bullish. That being said, however, volume last week was languishing and often, as history shows, these low volume rallies often end to the downside. The index is currently overbought and this may be an interesting short trade into next week.
The XLF continues to have strong resistance at the $22-23 level. If you were able to catch this trade last week, you definitely made a nice return. Volume towards the end of the week was pitiful as the XLF attempted to rally aboe the 50-day moving average. We continue to believe that the trend on the XLF is down.
Well, we said there would be a battle for direction on the oil chart last weekend, and indeed, that was exactly what we got last week. Inventories came in below estimates last Wednesday, providing at least a short-term case for the bulls and we expect this battle to continue on into next week. That 200-day moving average has not been violated in over a year and that will provide a strong defense for the bulls. However, if it is broken on strong volume, there could easily be a very strong selloff. This chart is not for the faint hearted and stop losses are a must.
Gold finally broke what had been a year-long support area last week on the basis that the US dollar is broadly being accepted as having bottomed. Volume confirmed this support break. We would not be surprised to see gold come back up to kiss what is now considered to be resistance, before heading lower again. Ideally, a short position would be initiated at that resistance “kiss.”
-Andy and Sul
Resistance on the DJIA continues to be at that 11,750 area. We actually managed to break above that level a few times last week, only to be held back by the 50-day moving average. Volume was pretty pitiful last week, but that was sort of expected really, as this market looks for some sort of direction. Unless some really excellent economic data comes out next week, the trend is lower.
The Nasdaq has been the strongest index of the past few weeks. In fact, it has actually managed to close above its 200-day moving average, which is somewhat bullish. That being said, however, volume last week was languishing and often, as history shows, these low volume rallies often end to the downside. The index is currently overbought and this may be an interesting short trade into next week.
The XLF continues to have strong resistance at the $22-23 level. If you were able to catch this trade last week, you definitely made a nice return. Volume towards the end of the week was pitiful as the XLF attempted to rally aboe the 50-day moving average. We continue to believe that the trend on the XLF is down.
Well, we said there would be a battle for direction on the oil chart last weekend, and indeed, that was exactly what we got last week. Inventories came in below estimates last Wednesday, providing at least a short-term case for the bulls and we expect this battle to continue on into next week. That 200-day moving average has not been violated in over a year and that will provide a strong defense for the bulls. However, if it is broken on strong volume, there could easily be a very strong selloff. This chart is not for the faint hearted and stop losses are a must.
Gold finally broke what had been a year-long support area last week on the basis that the US dollar is broadly being accepted as having bottomed. Volume confirmed this support break. We would not be surprised to see gold come back up to kiss what is now considered to be resistance, before heading lower again. Ideally, a short position would be initiated at that resistance “kiss.”
-Andy and Sul
Market Analysis: It's A Trader's Arena
08/08/08 09:54 PM
Up 300 points one day, down 300 the next. This market
has definitely been a trader’s arena as of late.
Fannie Mae and Freddie Mac both reported heavier than
expected losses last week, leaving us with little
evidence of any fundamental changes within the
economy. That being said, the oil chart has rolled
over entirely as short term resistance areas were
broken on heavy selling. However, key technical
resistance areas remain in tact on the major indices
currently and until those are broken, look for some
near term weakness within the markets this next week:
The DJIA remains trapped below the 11750 mark. Last Friday’s 300 point rally came on relatively light volume leading us to believe we may see some immediate downside here. The 50-day moving average is also providing some hefty resistance around this area.
With regards to the XLF, the trade continues to be on the short side. Both Fannie Mae and Freddie Mac helped us reach that conclusion last week. Again, resistance can be found at the $22-23 dollar range. Similar to the DJIA, the 50-day is proving to be a solid defense for the bears.
The oil chart has just filled with nothing but straight selling for the past few weeks, with the exception of that brief $5 rally that we caught a couple posts down. However, this is a year-long trend line and we believe that something dramatic will have to happen in order for it to be broken. Will this decline in oil bring about a rally in the markets? Possibly, but we believe that this trend line must be broken first in order for that to happen. The 200-day moving average will also provide some hefty support and we expect the bulls to put up a fight here.
Look for a revised market sentiment addition later this week.
-Andy and Sul
The DJIA remains trapped below the 11750 mark. Last Friday’s 300 point rally came on relatively light volume leading us to believe we may see some immediate downside here. The 50-day moving average is also providing some hefty resistance around this area.
With regards to the XLF, the trade continues to be on the short side. Both Fannie Mae and Freddie Mac helped us reach that conclusion last week. Again, resistance can be found at the $22-23 dollar range. Similar to the DJIA, the 50-day is proving to be a solid defense for the bears.
The oil chart has just filled with nothing but straight selling for the past few weeks, with the exception of that brief $5 rally that we caught a couple posts down. However, this is a year-long trend line and we believe that something dramatic will have to happen in order for it to be broken. Will this decline in oil bring about a rally in the markets? Possibly, but we believe that this trend line must be broken first in order for that to happen. The 200-day moving average will also provide some hefty support and we expect the bulls to put up a fight here.
Look for a revised market sentiment addition later this week.
-Andy and Sul
Market Analysis: Merrill Lynch and the Economy In Focus
03/08/08 02:05 PM
Quite a crazy couple of days last week. This market
continues to search for some sort of direction. News
from Merrill Lynch saying that they had liquidated
the last of their mortgage linked securities for 22
cents on the dollar (yes, 1/5 of their actual value)
sparked a flurry of buying in the financials. Jim
Cramer even called the bottom in financials on one of
his shows last week, leaving CNBC in nothing but
party mode. We are much more cautious though.
To start, let’s recap what Merrill Lynch’s CEO, John Thain, has had to say regarding their position in the markets over the past six months:
January 30th: “We're very comfortable with our position. We could have raised substantially more money. We turned people away.”
July 17th: “We believe that we are in a very comfortable spot in terms of our capital.”
Last week: “Our consistent focus has been to opportunistically reduce risk, and in order to take advantage of this sizeable sale on an accelerated basis, we have decided to further enhance our capital position.”
Coming from the CEO of one of the largest financial institutions in the world, his statements have been far from honest. That in and of itself should make investors cautious of calling bottoms in any sector. Furthermore, for this to happen just two weeks after the companies last quarterly earnings conference call is really “surprising.” Let’s just say that we would not be “surprised” to see even more writedowns as we continue into the second half of this year.
The fact of the matter, however, is that the economic data that we saw last week was far from encouraging. The US economy shed another 51,000 jobs last July, leaving us at a current unemployment rate of 5.7%. GDP came in at 1.9% annualized growth. Analysts were expecting something closer to 2.4%. Auto sales were pretty much terrible and Greenspan stated last week on CNBC that US home prices are “nowhere near a bottom.” Simply put, this economy continues to struggle.
On a chart, the picture is clear and the trend continues to be down:
The S&P500 continues to have very strong resistance at the 1275 area. Until we break that level, we will continue to be strongly bearish on this market. For the time being, however, we believe that this market will be range bound between the 1200 and 1275 area for the next few weeks.
The financial sector has been nothing short of a trader’s dream as of late. However, before we start calling bottoms on this sector, we’d like to see a break above $23.5 on strong volume. Until that happens, in our view, this is nothing but a short-covering, bear market rally.
-Andy and Sul
To start, let’s recap what Merrill Lynch’s CEO, John Thain, has had to say regarding their position in the markets over the past six months:
January 30th: “We're very comfortable with our position. We could have raised substantially more money. We turned people away.”
July 17th: “We believe that we are in a very comfortable spot in terms of our capital.”
Last week: “Our consistent focus has been to opportunistically reduce risk, and in order to take advantage of this sizeable sale on an accelerated basis, we have decided to further enhance our capital position.”
Coming from the CEO of one of the largest financial institutions in the world, his statements have been far from honest. That in and of itself should make investors cautious of calling bottoms in any sector. Furthermore, for this to happen just two weeks after the companies last quarterly earnings conference call is really “surprising.” Let’s just say that we would not be “surprised” to see even more writedowns as we continue into the second half of this year.
The fact of the matter, however, is that the economic data that we saw last week was far from encouraging. The US economy shed another 51,000 jobs last July, leaving us at a current unemployment rate of 5.7%. GDP came in at 1.9% annualized growth. Analysts were expecting something closer to 2.4%. Auto sales were pretty much terrible and Greenspan stated last week on CNBC that US home prices are “nowhere near a bottom.” Simply put, this economy continues to struggle.
On a chart, the picture is clear and the trend continues to be down:
The S&P500 continues to have very strong resistance at the 1275 area. Until we break that level, we will continue to be strongly bearish on this market. For the time being, however, we believe that this market will be range bound between the 1200 and 1275 area for the next few weeks.
The financial sector has been nothing short of a trader’s dream as of late. However, before we start calling bottoms on this sector, we’d like to see a break above $23.5 on strong volume. Until that happens, in our view, this is nothing but a short-covering, bear market rally.
-Andy and Sul