Rally resumes after finding support at the 20-day low

December 1, 2010:  The SPY after finding support just above its 20-day low had a nice day today, gapping up, never filling the gap and closing sharply higher.   It also closed at the upper end of its daily range, a good sign.
The first days of each month tend to be strong and this was no exception.
To put this day in perspective, however, the 2.08% rally today in the SPY represents over one-third of the year-to-date gain of 5.78%!  It shows you what a year it's been, with lots of sound and fury, but signifying... well, that traders remain nervous.
The market remains about 20% above its summer lows, which is good, and we are in a seasonally strong part of the year and the quadrennial presidential election year cycle.
Sell stop should be at 117.59.

The Market Loves Gridlock: Post-election Rally Should Continue

With the S&P 500 gapping up and after a period of consolidation, and several sectors looking very strong, the market looks poised for further gains.  Historically, having one party controlling Congress and another controlling the White House has been the most bullish combination, particularly if the president is Democrat.



Click here for more...

What Should Bernanke Do?

I do think Bernanke, a student of the Great Depression, knows what not to do.  We are seeing what happens when you do what you should do (flood the system with liquidity) and hope it works.  

It is true there are no statutory limits on how many dollars the Fed can print, but bond vigilantes would punish our bond market severely if it was felt the Fed was out of control, and that is the ultimate check.  The flows of money into our bond market every day swamp anything the Fed does, which is mostly at the short end anyway.  They can buy in longer-dated Treasuries or auction fewer (quantitative easing) but this takes some time to work through the system.  

The dollar was perhaps overvalued following WWII when the United States was the last intact industrial country and perhaps was artificially maintained by the gold standard (abandoned in the 1970s) and communism which kept half of our present competitors out of the game (China was going through the insanity of the Cultural Revolution and the largest man-made famine in human history the last time the world went through a similar slump).  

But economics is not a zero sum game. The Chinese who were absent from the game before very much need our economy to thrive or theirs is dead in the water.  They are rooting for our bond market only because they own so much of it, not quite as much as Americans, Japanese, or Europeans, but for the size of their economy, it's substantial.  They have no desire to see the United States plunge into some kind of Weimar Republic type of crisis.  

And that, by the way, is not what I see happening here.  The dollar is trading in a band of 10-20% and is currently approaching the lower end of that wide, sloppy trading range.  It is lower than it was 5 months ago, but higher than it was a year ago, and higher than it was in 2007.  We have been here before and perhaps will revisit these levels again but it is not (yet) the end of the world or of American dominance of it.  We still remain the world's largest economy by a long shot.  We are the world's largest importer and exporter.  Our currency for better or worse is the international standard for pricing gold and oil.  Signs everywhere here (in Switzerland) advertise schools to learn "Wall Street English" and there are more Chinese learning English than there are Americans.  

I do think there is something unique about the American culture that encourages innovation and also protects us from some of the insanity - revolutions and wars - that have gripped other places and held them back or ravaged them in some cases.  Despite all the optimism about Africa a few years back, for example, the news out of the DRC or Somalia remains unremittingly negative and the per capita income of Kenya today is lower than it was when it gained independence, as the president pointed out last year.  
China to me remains a work in progress; the euphoria of the last decade over the admittedly incredible strides China has taken to become the manufacturer of the world reminded me a bit of the euphoria people felt about Japan in the 1980s, but since the political system remains so repressive I do not know how a more liberal system will fare.  Communism has to soften politically as it did economically or it will collapse.  A third option is that the  hardliners will decide to rein it all in; they saw what happened to the Soviets post-glasnost.  Such a return to Maoist central planning would be economically stupid but did not prevent this unelected government from doing similar economically self-destructive things before 1989. 

We shall see.  The one thing I do know is that we will all be surprised, to the upside and downside, and all scratching out heads about why we didn't see XXX or YYY coming whatever those things turn out to be.  People will buy and sell currencies and take positions and hedge central bankers but in the end we will muddle along as we always have.  Along the way, there will continue to be fantastic trading opportunities, as there have been in the recent past.  One thing about volatility is it is not boring!   
I have seen and exploited more trends - readable from a mile away - over the past couple years than during all the time I have been looking at markets.  I think bull markets are dangerous and very difficult to play because to make money you have to do something ill-advised, jumping in with the herd to buy an asset your research should tell you is overvalued.  Times like these when people are rightly scared and looking critically at all their assumptions are healthy.  

I do hope employers start hiring again and if history is any guide, they will.   This overhang of bad paper will create a nasty hangover but the patient will survive.  One thing I feel fairly confident of:  10 years from now people will be kicking themselves for not buying more stocks today.  

I always used to tell people about the 29-44 period of economic stagnation and the 68-82 period and how it was remarkable that both lasted 14-15 years.  If the market topped in 2000 then 2014 or 2015 should be the decisive breakout (I am not making a prediction, only pointing out that this long period of stagnation and up and down movement of the stock market has happened twice before in the last century).  

I am glad the Fed can print money, by the way.  There are worse things than temporarily devaluing your currency and - as the Japanese can attest - better things than having a strong one!
Public debt, as Alexander Hamilton had to argue in his day, is not always a bad thing, and the fact that our government can borrow at such ridiculously low rates - less than 3% for 30 years! - is testimony to their creditworthiness.   History shows bond vigilantes who after all have trillions of their own money at stake are far more accurate at assessing the profligacy of our government than are political pundits who can attract more followers after all with dire predictions of imminent collapse than by writing that things are probably going to be OK.

And that debt which drives this whole process is really not as horrible as the Tea Party would like you to believe.  Much of it is reversible (eliminate the Bush tax cuts and a third would disappear; end the wars in Afghanistan and Iraq and most of the rest would go away) and much of it is in paper or stock that has value.  Viewing public debt in isolation while ignoring any offsetting assets would be like looking only at your mortgage while ignoring your home value (and the fact you have to pay to live somewhere).  The day I bought my first house, my debt went up several hundred per cent, but so what?  It was too low to begin with.   The profits from that first home (generated thanks to that debt) formed the down payment for the second which I have owned ever since.  Despite the ups and downs of the housing market, this was one of the best financial decisions I ever made.  My colleagues at the time who felt borrowing the astronomical sum of $72,000 was crazy ended up paying far more in rent and having nothing to show for it at the end.
So debt is a tool and like any tool can cut off the hand of a careless operator but can also make  incredible things possible.  I don't know the appropriate level of debt for the government behind the world's largest and most successful economy and either does anyone else, but if it gets excessive, the bond market will let us know (through plunging bond prices and surging interest rates)).  The fact that bond yields are at record lows indicates to me that we are going to be OK at least for the near term.  
And in the long term, as Keynes reminded us, we are all dead. 

Market Continues to Rally Following September Buy Signal

Market Update Wednesday 10/13/10 (9:48 am EST):  The S&P 500 (SPY @ 117.71) continues to follow through after its buy signal just above 110 in early September.  For charts and analysis of the market as well as gold, China, emerging markets, Russia, and basic materials, click here.   

The Most Bullish Stretch of the Presidential Election Cycle Is Underway

September 29, 2010 (SPY @ 114.15 @ 10:46 a.m. EST):  If history is any guide (and it is the only one that we have), we are currently about to enter the most bullish stretch of the four year presidential election cycle.  As the accompanying table shows, midterm Octobers (10 in the month row in the "Mid" column) have an average 3.08% gain. Although as I write this, September has been up sharply, so it is possible that October may see a natural selloff or less than average gain.   Nevertheless, the next 11 months - through September of the pre-election year - have all been up sharply on average with the exception of pre-election Mays (0.15% average).  Selloffs in September and October of the pre-election year (2011) have given each of those months a negative average return (the crash of '87 occurred in October of the pre-election year, which, like all pre-election years since World War II, ended the year up - the sell-off simply wiped out most of the gains of the year).

	Month x Election Year Live Tables:
Month:	Post	Mid	Pre	Ele
1	0.31%	-0.50%	4.24%	0.13%
2	-1.71%	1.16%	0.88%	-0.48%
3	0.39%	0.48%	1.82%	0.73%
4	1.52%	0.51%	3.24%	1.21%
5	1.69%	-0.95%	0.15%	0.46%
6	-0.75%	-2.04%	1.84%	1.37%
7	1.91%	0.24%	1.19%	-0.06%
8	-1.02%	-0.50%	1.20%	0.70%
9	-0.27%	-1.89%	-0.49%	-0.39%
10	1.03%	3.08%	-0.94%	-0.40%
11	1.74%	2.65%	0.36%	1.02%
12	0.61%	1.72%	2.95%	1.08%

Market sell-off resumes (SPY 106.82) shortly after trader's rally peters out…

Market sell-off resumes shortly after trader's rally peters out…

Friday, June 04, 2010  With the SPY at 106.82, the downtrend is clearly in full force, down 3.51% today on heavy but not spectacular volume:

The two most recent up days were low volume affairs that sputtered out almost exactly at the middle of the 20-day range, a sign of a very weak market.  The only encouraging sign here is that there seems to be significant support in the 104 and change area, a level at which the market was turned back 3 times since February.  If you draw a line connecting the highs of the market since the relative peak in late April, you get a trendline that is now slightly above the 110 level, which would have to be decisively broken for the downtrend to be presumed over.    The 20-day-low would have had you short the market since 117 at the end of April. 

The Euro continues to get crushed; notice how it violated the 20-day-low where it had found support for the past 2 weeks, gapping below it:

The Swiss Franc has been badly mauled but is holding up much better than the Euro recently and notice it has not violated long-term key support as the Euro has - is it trying to form a bottom?

The Swiss stock market is selling off though:

SPY surges then falters at 109.37 – was that it? Maybe…

SPY surges then falters – was that it?  Maybe…

After popping 5% since my last post, the market rally fizzled but is still up 2 points from where it was.  The market looks very weak here and could not even rally up to a downtrend line drawn from the April highs.  Not good. 

Holiday trading usually distorts things; will see what news the weekend brings but the technicals say the bear market is resuming. 

S&P 500 20 Year History - Breakout in 2015?

20 Year history of the S&P 500:

Despite all the choppiness, clear periods of up trends and down trends are evident. 

In the past 2 major secular bear markets (1930s and 1970s) the market took 15 years to exceed its prior highs.  Assuming 2000 marked the high tide mark of this secular bear, it would not be outrageous to assume we are in for another 5 years of up and down choppiness before a decisive breakout to higher ground.  Of course, in there, there will be plenty of tradable rallies and declines.

A Short, Sharp Rally From Here (SPY @ 107.82) is Likely

A Short, Sharp Rally From Here is Likely

Wednesday, May 26, 2010 (SPY @ 107.82 before the market open):

Several bullish factors are in place:

1.) Key reversal – market gapped open sharply lower, then rallied back to close higher.

2.) Failed downside breakout – market violated most recent spike low only to rally higher, confirming at least short-term support there. 

3.) Higher volume on last 2 up days than on 4 of the 5 last down days – a bullish sign of accumulation.

4.) Near-term support also from the 104 February low. 

5.) Market oversold – 14% sharp decline on heavy, panic volume with many down gap days since April 122 peak. 

6.) 2b bottom in place according to Vic Sperandeo's criteria (fudging a little on the trendline violation).

7.) Long upside day on heavy volume with close near the top and open near the low. 

8.) News from Europe and the Gulf and Korea is unremittingly bearish (which, in the contrarian world of trading is bullish).

Is this is a significant market bottom?  Unlikely, but again, we don't have to guess.  If you are short or flat, consider dipping a toe back in, buying a little at 108 stop and a little more at 110 stop, the bottom of the last down gap.  Place sell stops immediately at the market low of 104.38 (I usually go a bit lower, perhaps to 104.35 or 104.3).   If you are filled near 108, you will have fewer than 4 points of risk.   If the market does rally, watch how it behaves around 112 (the 200 day average), 116 (the bottom of the most recent flag) and 118 (if it clears the 50 day and the most recent relative high). 

Remember that markets exist to frustrate and disappoint most people, so stay very flexible here, but it is worth a shot.  Covering shorts is probably not a bad idea until things settle down.

What is true of the broader market is even more true of certain sectors, such as Basic Materials:

Shorting China remains a very profitable trade, but expect a pull-back (possible Chinese rally):

The financials still look weak and the fundamentals are atrocious (weak balance sheets, pending regulation, probable paradigm shift as they go from being gambling houses to boring old utility-like banks):

A weekly chart shows that despite the pullback, financials still have quite a ways to tumble:

The dollar looks over extended and ripe for a pullback:

The Swiss franc continues to get crushed with little technical evidence of any end in sight, although the currency is probably short-term oversold. Notice the extremely high volume up day three days ago:

The Swiss stock market is also relentlessly selling off:

Hong Kong looks very interesting with extremely strong support at these levels after panic selling:

Buy Signal Valid - Market Sells Off on Heavy Volume

Thursday, May 06, 2010 (SPY @ 112.94 down 3.32%).

The dollar is going parabolic after a decisive breakout 3 trading sessions ago on massive volume.

The Euro is selling off with 4 gap down days in a row on very, very heavy volume.

Despite the dollar rally, gold, which usually moves inversely to the dollar, is rallying.  Some caveats:  we have been here before, some of this is reflexive buying in panic over the Greek-Euro situation, and there is heavy resistance at around 120, where GLD was turned back in December on very heavy volume (much heavier than the underwhelming up volume seen recently). 

Someone is selling Switzerland…

Beautiful double top in place for Homebuilders.

Financials have been breaking down all April, making lower highs with extreme distribution (much greater volume on down days than up days).   Is it too late to short these stocks?

The weekly chart says no:

Despite all the drama of a 1,000 point Dow plunge, this only brings the market (and the financials) to about where they were at the start of the year.  If the financials tested their March 09 lows, that would represent over a 50% additional decline from here. 

What's the easiest way to short the financials, even in a retirement account?  Consider the UltraShort Financials ETF:

Expect lots of choppy trading days ahead up and down, but the odds favor continuation of the selling seen today, perhaps in an even more dramatic fashion.  Traders and investors are still reeling from the psychological damage caused by the market's decline in 2009 and have all convinced each other that that is in the rear view mirror.  Perhaps not.  Another leg down could be much more precipitous as people rush for the exits.  They have seen this episode before, and it does not look like any central bank is able to bail out the world.

One conciliatory observation:  an intraday S&P 500 chart shows that the massive sell-off occurred in a space of about 10"; 20" after it had begun, the market was clawing its way back to where the sell-off started, then even rallied past the sell-off point, only to see-saw within a much narrower range for the rest of the session:

Still, the fact that the market could sell off so sharply for whatever reason in whatever time frame is unnerving and no doubt will have people eyeing their portfolios very warily going forward. 

S&P 500 issues sell signal at 117.60

SPY @ 117.60 violates 20-day low.

May 5, 2010 (before the market open in New York):   The S&P 500 has now confirmed a new downtrend, violating the 20-day low.  (I cheated a little and exited a few days ago at higher prices because the market had violated an up-trend line and was showing clear signs of distribution (far more volume on down days than up days)).

















Several things about this violation confirm a more bearish stance:
  - the 20-day low was violated with a close below the low - this alone should be enough, but...
  - it was a "long bar down day" with a decline of 2.35%;
  - it violated a pennant consolidation area forming on the wrong side of an uptrend line;
  - it occurred on very heavy volume;
  - distribution continues - 4 of the 5 heaviest volume days of the past few months have been down days and most up days have been on below average volume;
  - the failure to follow through on the 122.12 new relative high of 2 weeks ago is now confirmed (a failed signal is one of the most reliable signals).

Fundamentally, the backdrop remains difficult with financials clearly in the cross hairs of now awakened regulators.   Whatever the outcome of the GS criminal and civil probes, there is a chance that banks will go back to being banks, meaning a rather ho-hum, non-sexy business somewhat like utilities.  As the financial sector contracts to reflect these more realistic growth prospects (not to mention the enormous balance sheet damage that still must be worked off) you will see the S&P 500 dragged down.  Interestingly, though, this decline is not being led by financials (XLF), who actually had a better day yesterday than the broader market although still down sharply.   The big damage seems to be in Basic Materials (XLB) down 3.47% (Ultrashort Basic Materials SMN is a good way to play that move, up 7.72% yesterday.
The oil spill in the Gulf of Mexico means at a minimum off shore drilling is on hold and expect a flurry of new regulations and perhaps some closed or idled rigs.  All of this can be bullish for black gold but this could put a drag on the United States economy, just as the collapse of the price of oil gave an unexpected windfall over the past few years.
China, which has really become a leveraged bet on the American consumer, continues to sell off very sharply. ProShares Ultrashort FTSE, FXP, mentioned here last week, continue to surge, rising 7.5% yesterday alone and are currently 22% above their recent low a few weeks back.
Many interesting plays out there.  Fasten your seat belts!

S&P 500 breaking down after nice rally; Financials getting clobbered

Wednesday April 28, 2010 (SPY @ 118.48)

The market is looking very vulnerable here.  The S&P 500 (I use the S&P 500 Depository Receipts (SPY @ 118.48)) while technically still in a buy state according to the 20 day high-low system, is doing some very bearish things:
 - after a long, extended rally with few pullbacks or consolidations from a low of 104 only 2 months ago, the market surged to 122, a 17% gain, then crossed its uptrend line on heavy volume in mid April.
 - it then rallied and even broke out to a new relative high but saw no follow-through and sold off sharply (-2.37%) yesterday on very heavy volume - in fact, if you look at a chart of April volume, you will see two spikes of double-average volume on the two heaviest down days, a sure sign of distribution.
  - it closed at its lows yesterday;
  - its low and close were both below the lows of the prior pullbacks as well as below the middle of the 20-day range.

Fundamentals are bearish with Greece threatening Euro land and the SEC and Congress intent on not letting the financial companies make off with the taxpayers' money (recent corporate profits at major financial firms were almost exactly equal to the taxpayer bailout... hmmm).

But to leverage this anticipated down leg, other markets and sectors might offer better shorting opportunities:

Proshares Ultrashort China surged 6.98% to 41.68 at the close yesterday, triggering a 20-day buy signal. As the name implies, this is a very volatile ETF that moves inversely to the Chinese stock market, but is certainly worth a look. The 20 day low is at 34.85 but a closer stop could be placed toward the lower end of the consolidation area following the gap up in mid-April (around 38).

Russell 2000 Value iShares remain in a buy state with a sell stop at 63.78.

Financials (XLF @ 15.96) are getting crushed as they should. They went parabolic from 13.5 in February to over 17 just 2 weeks ago, so were due for a pullback. Nothing much has changed at these firms; they remain highly cyclical with horrible balance sheets and an SEC with teeth looks like it's not going to let them take the taxpayers' money and run. They broke down across a trendline on very heavy volume in mid-April, tried to rally back could not attain their old highs, thereby forming a lower high then collapsed yesterday, closing down 3.38% on very heavy volume. A good shorting opportunity presents itself, but expect lots of up and down volatility here. Sell stop is at 15.81.

Technology (XLK @ 23.58) sold off with the rest of the market, but is looking relatively stronger than financials. It is still holding above the midpoint of its 20 day channel. Down volume yesterday was over twice average and higher than it has been since January. Lots of distribution going on. Sell stop at 22.90.

Consumer Staples (XLP @ 27.48) is a beautiful short gapping down across the 27.76 20-day low.   Down volume is not as impressive as technology's and the 1.75% decline was a bit better than the overall market, but a sell signal is a sell signal.

Healthcare (XLV @ 30.66) continues to sell off after issuing a sell signal at around 31.75 2 weeks ago.  Some very bearish aspects of this chart include a climax top (surge to new parabolic highs on heavy volume with failure and collapse) in place just above 33 from January, followed by a failure to attain that high in March (failing at around 32.7), then a sell-off since then.  Buy stop is at 32.42.

Gold (GLD @ 114.63) confirmed its breakout in early April, when it triggered a buy signal at 111 and change.  It's been somewhat choppy and would really have to clear the climax top (with an island gap no less) at 120 which will still pose powerful resistance, but a run to that level at least looks highly possible.  Sell stop at 107.87 or traders could use the bottom of the recent cup at around 110.

Natural Gas (UNG @ 7.54) is interesting only because it has been so badly beaten up and is starting to show some signs that a bottom is in place.  First, following a long, steep decline from 11 to below 7, an almost 40% decline (the 20 day would have had you short from about 9.75, making for a nice profitable trade), UNG failed to make a new low despite two major attempts in early and late April.  In the meantime, it did something it had not done since February, rising to the midpoint of its trading range.  Then it challenged its most recent high and now is on the verge of triggering a buy signal at 7.68.  Sell stop would be at 6.82.

Germany (EWG @ 21.30) got clobbered with the rest of Europe over Greek woes yesterday.   The 20 day would have gotten you out at 21.54, locking in a small profit from the trade triggered just above 21.

Hong Kong is also bearish, and Malaysia and Singapore are questionable.  Latin America (ILF at 46.66) issued a sell signal.

If you want to short this market in a retirement account, look again at DOG at 48.88, although it has not yet issued a buy signal - the 20 day is at 49.73.
 

S&P 500 Follows Through on March 1st Buy Signal But Approaching Resistance

SPY (115.23) broke out just below 112.  Only a few weeks ago I was bearish and short, so it just goes to show you that it is more important to be flexible and agnostic as to market direction - the market will show you what it is going to do.   Not always, and certainly not with anything like 100% accuracy, but mindlessly following the trend is superior to trying to outguess the market based on what it has not done yet.  If the market closes higher today, it will be the 10th straight session up and there is resistance in the 115 area, where the market was turned back in February - stay tuned.    The last sell signal was about break even, getting you long about the same price it got you short.





Germany (EWG) seems to have formed a double bottom in February and has now triggered a buy signal just above 21.   The short trade closed profitably (about 15%). 





Malaysia (EWM) is really surging ahead, gapping up into relative new high territory.  Note the ultimate highs were set at the end of 2007 at over 13, so it may have quite a ways to run. 





Canada (EWC) is still riding high on its Olympic euphoria, and is also challenging its recent highs in the 27.6 area.








Russell 2000 Value iShares (IWN @ 63.41) are very strong, in new high territory, after a breakout and buy signal just below 60 on March 1. 





Hong Kong iShares (EWH) look interesting after generating a buy signal just below 15.4, but are running into resistance in the 16.4 area, where they were beaten back three times since October. 





Gold (GLD @ 108.61) is choppy and trendless but technically is in a buy state, although its settling back to below the midpoint of its 4-week range is not very bullish.

SPY Continues to decline, violating key support on very heavy volume

Friday 2/5/10 2:20 AM EST:  The SPY (106.44) continues to breakdown, falling 3% yesterday on very heavy volume.  Had you been following the simple 20 day high-low system, you would have been out 10 days ago (see last post), locking in 20% profits.  

Click on the image to enlarge.  Notice a couple of things: 
   - after breaking down and giving a sell signal 9 trading days ago, SPY made a feeble attempt to rally, climbing above 110; notice the volume on updays - much lower than the very heavy volume on down days, a simple indication that there was much more selling than buying;
  - the rally high failed to reach not only the prior high but even the breakdown point or the middle of the 4 week trading range;
  - a long-term trendline from July has been broken decisively;
  - the 50 day moving average (not as important in my book) has been violated and the 150 day seems very close to being violated.

What to do?
Try one of the short funds, such as DOG which returns the inverse of the DOW.
Oil and Gold are also breaking down, so I would not go long these.  Gold has a very interesting bearish chart.  The dollar's rally versus the Euro (which is another good short here) for fundamental reasons is making anything priced in dollars (read commodities) less expensive for no other reason.
Someone out there fears a tremendous economic contraction with decreased need for Stuff such as Gold and Oil, both of which are shortable thnaks to ETFs (GLD and OIL). 
Happy hunting - if you are conservative, you should be flat and in cash or short term bonds (check out SHY as a proxy for cash).
If you are aggressive, you should be short some of the names I mention

Publish Post

ed last post - EWG, GLD, XLF, XLK, even XLU.  
Happy hunting!  Keep your powder dry.

S&P 500 Sell Stop Hit, Locking in almost 20% profit since July

Monday 1/25/10 (before market open):  The S&P 500 has done something it has not done in half a year:  after a very nice rally from the panic lows of the summer, the market finally violated its 20 day low, triggering a sell stop.  The total profit on this trade, had you followed this simple system, was about 19.7% from the 92.5 buy signal in mid-July to the 110.75 sell stop hit on Friday morning just before the market cratered another 2%. 

Using the S&P 500 Depository Receipts (SPY) as always as a proxy for the market, it's clear that the market's trend has changed.  A few extra technical points confirm this:
 - sell stop was violated on very heavy volume, just as prior 2% loss was on heavy volume;
 - both Friday and Thursday were wide-ranging days with closes around or at the lows of the day;
 - 50-day moving average was violated with a close below it (not as important);
 - over the past month, volume on down-days was much higher than on up-days, indicating distribution (heavy net selling of shares even as the market rose);
  - violation of uptrend line connecting the lows of the rally from the July lows with close beneath it;
  - failure to follow through on late December early January breakout to new recent highs.

If you are an aggressive trader, consider shorting the S&P 500 with a buy stop at the midpoint of the recent range.   Nearest support is at the 102 area, but as always, don't be surprised by a dramatic one or two day rally with all the pundits saying it's over.  Don't believe them; until the market tells you otherwise the trend has changed. 

Other trading ideas:

Check out VXX an ETF that allows you to buy the VIX, essentially implied volatility of the stock market.  When traders get nervous, VIX tends to surge, often dramatically; when they are complacent, it often falls off.  Historically, VIX has traded near the historic annual standard deviation of the stock market, in the low 20% range (meaning that about two-thirds of the time, the stock market's returns have been its mean (about 10%) plus or minus roughly 20%).   VXX surged another 8.77% on Friday and would trigger a buy stop at 34.09.

XLF, the Financial Select Sector SPDR, is also a good short bet, with a bull trap in October (failed breakout) and a subsequent failure to attain even those highs, followed by a 3.26% decline on very heavy volume on Friday alone.   Populist outrage against the recipients of the bailout billions paying its executives so much should keep a lid on visible profitability for some time.  Expect plenty of regulation down the pipeline from Dems and Republicans.

XLK, the Technology Sector SPDR, has also triggered a short sell signal, down 3.5% Friday on very heavy volume. 

Hong Kong can be shorted via its ETF, EWH,  which presents a textbook case of a triple top, with failure of a thrice-hit 3 month support level at 15.25.   Thursday's violation of this support came on heavy volume and was a gap down day and wide-ranging day to boot.  Friday saw consistent selling with failure to even approach the bottom of the gap.  A short-seller could use the break-down point or the bottom of the gap as buy stops to cover the short position (stops are even more critical to short positions than to long ones since the risk is theoretically limitless).

If you don't like short-selling and are looking for some long opportunities, keep an eye on gold, GLD, although it has been looking weak, it is technically in a buy state after having hit the 20 day high at 112.  The sell-off down to near the late December lows and the failure to attain the highs reached in early December, as well as the very heavy selling volume after that high was reached all are bearish signs, but when an asset fails to trigger a sell signal when so many others do in such a weak market, watch closely.  If you do go long, sell stop should be at 105.31. 

Another interesting sector is healthcare, whose fate is somewhat up in the air following a rally on the prospect of 30 million new mandated paying customers.  Nevertheless, it is impressive that the IYH iShares have not hit their 20 day lows so remain in a buy state in such a weak market. 


Keep your powder dry and your stops tight.  If you have been doing things right, you should have raised a lot of cash (which I personally like to park in short term treasuries through SHY).

S&P 500 Down on Very Heavy Volume, Inches From Sell Signal...

Friday January 22, 2010:   SPY @ 111.70.  Today the stock market closed down sharply on very heavy volume.  The S&P 500 Depository Receipts (SPY) are giving signs that this rally is ending:

  - volume was very high, higher than it has been since a similarly dramatic down day closed October, 2009;
  - after beginning the new year with a series of new relative highs, the market could not follow through, and has now slumped back down to where it started the year (111.44) and the most recent breakout;
  - this particular buy signal, generated in July at around 93 on is very old, up 24% at one point from the buy point and 33% from the July low;
  - a significant long-term uptrend line from the July low connecting the subsequent lows was broken;
  - the trailing 20 day low is now less than a point away at 110.76; tomorrow will likely see a puncture of this low - tighten your stops!!

The fundamentals, which were horrible when this rally began, are slightly less horrible; Wall Street's fear of President Obama strikes me as silly in a market crying for greater enforcement of existing regulations.  It was lack of regulation, a culture of greed, excessive leverage, and creative financing that got us into this mess.  Banking should be a boring business of accepting deposits and making loans and making a living off of the spread and fees.  It's become something far too exotic. 
That said, the financials have plenty of reason to sell off; their balance sheets look terrible and the moral hazard introduced by the "too big to fail" policies of the Treasury have only emboldened Citigroup and others.  Shorting the XLF (Financial Depository Receipts) will probably work out nicely, but expect a lot of choppiness. 
Other interesting plays:
VXX - Volatility ETF that rises and falls with the VIX, or implied volatility of the options market.   Going long volatility helps hedge long stock positions.  VXX rose to just below 30 today, up 5.4% in a single session.  It remains far below its 20 day high and has lost two-thirds of its value last year as fears of the end of the world receded, but who knows what the future holds? 
Shorting other markets as they generate sell signals from Germany (EWG) to Singapore (EWS) may also prove profitable in our all-too-interlinked world. 
Gold (GLD) continues to behave poorly after a phenomenal rally then sell signal, then failed attempt to retake the old highs.  If it passes the test of the most recent lows, it may be a good buy from here though (technically it is in a buy state, having punctured its 20 day high to the upside. 
Toyota Motor (TM):  As you can probably tell, I like the liquidity and ease of ETFs, but as an individual stock, the chart looks interesting.  The company gapped up on heavy volume 7 sessions ago and has not filled the gap.  MSN Stock Scouter (which I think is a fantastic service) rates it an 8 out of 10 for appreciation potential over the next 6 months.  Will see..