Sunday, March 29, 2009

S&P 500 chart

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A few days ago in my "DJI Chart" post I have pointed to the possibility of indexes running to the new level which was confirmed by the further recovery. Now, at the end of the week the odds of the correction down have been increased. A month of strong recovery (with the small correction on March 19-20, 2009 only) have been pushed market into the overbought condition (at least for a short-term). Even if stock market is not any longer in the recession, for healthy recovery at least some small corrections are needed and sensitive level drown by me in my previous post is on my opinion a level when we may see at least flat market or correction down.

Technical analysis, based on the standard indicators I usually use, show the buildup of bearish sentiment. All technical indicators (SBV,Advance Decline, Stochastics, RSI and McClellan Oscillator) on the S&P 500 chart below are bearish. If you apply the same indicators to the Nasdaq 100 and DJI indexes you may see similar picture.

S&P 500 chart
Now taking look back on February 9 – March 6, 2009 decline I would separate this decline from the recession and global stock market crash. I still consider that the stock market crash ended on November 21 of 2008. By that day everything was crashing down. Yes, S&P 500 and DJI indexes dropped below November 21st lows, however since then the indexes are not as volatile as they were before and some of the indexes (Nasdaq 100, S&P 400, Dow Jones Utilities...) remained above or at the November 21st lows during the February 2009 decline. I would more consider the February's decline as levelling when some of the companies (financial, automakers) still had to go down while other market sectors (computer, telecommunication, biotechnology, etc.) already hit the bottom and during February 2009 went down only because financial and automakers sectors are very big and their trend influences other companies. Yet, I could be wrong and I would not go deeper into fundamental analysis – this is not my field.

Wednesday, March 25, 2009

Citi stock

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In the beginning of March I have put a question aboutCiti Group stocks. I usually do not trade stocks, yet such periods when you have so many underevaluated companies are not coming very often in the history of stock market. Yes, after I make Citi point the Citi Group stock dropped from $1.50 to $1.00 and my congratulations to those who did not panic at bought it at $1.00. Not it is at $3.00 and that is 200% higher.

Monday, March 23, 2009

DJI Chart

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Very nice day. It looks like we witnesses what I mentioned yesterday in my "Short Technical Analysis" post:

The bullish volume during the recent recovery (March 9-18, 2009) is very strong and can cause serious correction down, unless, March 6, 2009 bottom was the last drop in the recession and now we are in the long-term recovery. In this case this bullish volume could be ignored and could indicate long term change in the stock market sentiment as it was in period from March 12 to March 21 of 2003...

It is not just about volume - many technical indicators show that the market is overbought in short-term and possible correctional move down already a week ago - see my "S&P 500 Chart" post where I alerted about possibility of short-term correction within longer-term up-trend. The today's run up is very good from longer-term trend point of view. Now, unless tomorrow we see decline, I would expect DJI to go very easy  above $8,000 - next possible sensitive level where stock market fluctuated a lot over the past couple of months (Nasdaq 100 and S&P 500 indexes have similar sensitive levels).

DJI chart

Sunday, March 22, 2009

Simple technical Analysis

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I will be short today. Sorry, have a lot what to say - do not have a lot of time. As I mentioned before, I keep my blog running because it keeps me on the track and helps me to sort my thoughts. I have some knowledge and I share it for free. I wish I would have more time to do it...

Quick chart below would describe the main points of my technical analysis:

S&P 500 chart

The Nasdaq 100 and DJI chart are similar to the chart above:

  • My technical indicators applied to the 60-day  chart (hourly chart: 1bar = 1 hour) tell that the indexes are overbought on the hourly chart - we may see (we already started to see) a correctional down move;
  • The same technical indicators applied to daily chart as well as to higher timeframes show that the indexes still oversold in the mid- and long-term;
  • The bullish volume during the recent recovery (March 9-18, 2009) is very strong and can cause serious correction down, unless, March 6, 2009 bottom was the last drop in the recession and now we are in the long-term recovery. In this case this bullish volume could be ignored and could indicate long term change in the stock market sentiment as it was in period from March 12 to March 21 of 2003 - if somebody remember those days...
  • Do your own homework.
  • I consider that it was good time to invest in pension and I think it is still not too late. Because of the 2008 crash that was caused by financial sector a lot of good stocks are underevaluated...
  • Sdudy charts and monitor them...

Sunday, March 15, 2009

S&P 500 Chart

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For several weeks I have not been referring to any chart in my posts. I assumed that, whoever reads my blog may know from my previous posts charts setting I usually discuss and may simply open these charts. Now, I think, it is time for me to make chart snapshoot again. At the end, I believe it is easier to follow my posts and points of my technical analysis by looking at the chart (majority of people, including me, visually accept faster) than just simply reading the words.

Below you may see the S&P 500 60-day chart (1-bar = 1 hour). Some of traders call it 60-day chart because you may see 2 months of data on screen, some of traders cal it hourly charts because one bar covers one hour. I give both references for earthier understanding.

S&P 500 chart
On the S&P 500 chart (Nasdaq 100 and DJI chart similar at this time) above you may see the standard set of my technical indicators for hourly charts. As you may see I do not rely on one indicator and even I consider volume as one of he most powerful tools I do not rely solely on it. Basically I have three groups of indicators on this chart: volume based, price based and advance/decline indicators. In this way I believe I cover all aspects of the trend analysis.

At this point of time my technical analysis of the hourly charts tells me that the market could be considered overbought in the short-term and we may expect to see some correctional movement down. By shortly summarizing the indicators above I may say that:
  • High green MVO, RSI above 70, Stochastics above 80 - all of these suggest the indexes are overbought in short term (short-term because it is not high time-frame chart).
  • Declining SBV, MACD and McClellan Oscillator point that the sentiment started shift toward the Bullish mood.
  • RSI and Stochastics are still above 70 and 80 respectfully by still pointing to the Bullish sentiment.
From these three points above I may assume that we may expect to see a short-term correction down because the indexes could be considered overbought and we already started to see some changes in the sentiment from Bullish toward Bearish. However, I would like to see some flat market before. It is unusual to see sharp reverse down after strong up move. As a rule market (indexes) can have sharp reversal in support, yet, in resistance it is common to see several sessions of flat market. At the same time the SBV is still high and McClellan Oscillator with MACD did not crossed zero lines - these as well tells me that we may see some flat price movement before correction.

From the short-term analysis prospective I would recommend always consult higher timeframes (it is always a good trading strategy to analyze several timeframes). If you apply the same technical analysis to daily charts (1-year chart where 1bar = 1 day and 3-year chart where 1 bar = 3 days) you may see that in the longer term the market is still strongly oversold and longer-term sentiment is strongly Bullish. Because of that even I expect to see correction down I would not expect it to be very strong but rather a short-term move down within longer-term recovery. I even assume that because of the strongly oversold longer-term market (indexes) the shorter-term overbought levels could be ignored and there is a possibility of further up-move.

Overall (do not confuse you) I would say that my technical analysis suggest recovery in the longer-term, yet possibility a correction in the shorter-term.

Support Level

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Over the last two weeks in my "Technical Analysis" post on March 9, 2009 and "DJI Chart" post on March 1, 2009 I have pointed that the huge trading volume seen on the indexes would definitely lead to the strong reversal. Last Sunday I have even mentioned that whoever entered long position after February 27, 2009 (day when we started to see huge increase in the volume) could be a winner very soon. Now, we had a strong rally up and basically the results of my previous technical analysis are confirmed by that.

As you may see, the volume based technical analysis sometimes could be very easy and in some cases it could be very complicated. As a rule it is easier to analyze volume on the longer term-periods and it is easier to define support levels. On the longer term charts and at support levels volume surges are stronger and more noticeable. Yet, when it comes to the shorter term charts and defining resistance levels volume based technical analysis becomes more complicated: volume surges are not as clear in the resistance as they are in support, and with smaller timeframes you have to consult higher timeframes charts to see general market trend and analyze volume in accordance to it. The same principles should be applied not just to volume but to any technical indicators. The difference between volume and price based technical analysis is that the volume shows the market sentiment that is based on the money flow, while price indicators rather follow the event. Volume never lie, yet, traders do mistakes in analyzing it. I'm not stating that the volume is the best technical indicator. It is difficult and sometimes almost impossible to apply volume analysis to low trading stocks. That is why volume works best with indexes.

Now, after the strong rally it is logical to ask if the market will continue to recover. There is no doubt that over the last couple of sessions the market could be considered overbought at least in short-term. Yes, if we take a look at 1-year and higher timeframe charts we may see that the stock market is still heavily oversold (especially DJI sector, then S&P 500 sector while Nasdaq 100 companies are less oversold). However, when you go to the lower timeframes you start to see some indications of overbought market. From this I would assume that the market still has power and most likely will go higher, however, price does not move up all the time - it moves up by having corrections down time on time. Taking look at the smaller time-frame charts I may see that we could be looking forward if not for a correction then at least for slow down and flat market.

I think everybody now believe that March 6, 2009 has market very strong support level due to the volume output in period from January 20, 2009 until now. I do not think we will see index back at this levels very soon. It is too early to judge if this is the end of the recession - it is not something that should be done after four positive sessions. Yet, I think we could expect good market over the next couple of month.

Thursday, March 12, 2009

Volume and Indexes

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Since nobody leaves any comments I will take a courtesy of telling some good words. From my last week "Technical Analysis" post

"I think that starting from February 27, 2009 (biggest daily volume) everybody who was entering long position (buying) could be in profit soon. Yes, indexes have dropped about 10% down since then, yet, over the past year, in such volatile market, we saw indexes 10% recovery in 1-3 trading sessions."

It's nice to be right, especially on the stock market where it could be reworded. I may say only one thing - volume never lie. There are still a lot of traders who is very skeptical about volume analysis and who underestimates the power of the volume based technical analysis. I am not telling that the price based indicators are bad. No, not at all. However, price analysis without volume is zero, the same as volume without price tells nothing.

I consider myself not a very bad in the index volume technical analysis and I will take a risk to give two advices:
  1. If you still do not have any volume based technical indicator in your arsenal, take it and learn it. I'm not talking about rejecting your price analysis, but completing it with volume technical analysis. Remember, the price trend is always described by price change and by volume during this price change. So, why to look only on half of the picture?
  2. If you still do not analyze indexes (even if you trade stocks) take a look at them. I'm not talking about stopping to analyze stocks or switching to index derivatives trading. Stock analysis is very narrow and does not show where the market goes. Only index analysis (not CNN news) may tell you where the market goes. I bet over the last three sessions even lousy stocks were happy. Find our what index your stock belongs to and take a look at this index - find out where the market sector your stock is traded goes.

Monday, March 9, 2009

Technical Analysis

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Last Sunday in my "DJI Analysis" post I mentioned that the majority of my technical indicators were negative, yet with indication of strongly oversold market. As a result we witnessed further decline during the whole week.

By the end of the current week the technical analysis applied to the 60-day chart (1 bar = 1 hour) is more optimistic that it was a week ago. At least, we may see some indicators became bullish. By adding to it strongly oversold condition stock market is, I would consider that the odds are on the side of recovery. I think that starting from February 27, 2009 (biggest daily volume) everybody who was entering long position (buying) could be in profit soon. Yes, indexes have dropped about 10% down since then, yet, over the past year, in such volatile market, we saw indexes 10% recovery in 1-3 trading sessions.

Shortly, by taking look at my standard (see chart setting in may last week "DJI Analysis" post) set of indicators I may say that
  • SBV points to the strongly oversold indexes, yet, neutral at this moment;
  • MVO suggest strongly oversold indexes;
  • Advance/decline oscillator become bullish, yet, it would be wrong to say it strongly bullish;
  • MACD is Bullish;
  • RSI and Stochastics moved above 30 and 20 levels respectfully by pointing to possibility of bullish trend;
  • McClellan Oscillator is negative and points to higher odds of further decline.

Saturday, March 7, 2009

Stock Market Regulation

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I'm a simple trader and this is just my thoughts. I'm not an expert, yet, on my opinion government and SEC has to do something to protect stock market from tragic and devastating crashes and only then pump money in the economy. Not to be judged as a person that screams only (based on my previous "Stock Market Crash and Regulations" post), below I set a few points that I think could protect the stock market from devastating crashes. Of course it's not my job - government and SEC could do better and I hope they will do:
  1.  Banks should be separated from the trading on Wall Street. The purpose of the bank is to provide money communication between people, companies and government. If the banks start to play trading games on the Wall Street and then bank's trading losses on may affect the main purpose of the banks and the economy as a result. We can have investments banks and other investments institutions, yet, they have to be separated from the banks that provide money communication between people and businesses, that lend money to the people and businesses, where people and businesses keep their savings.
  2.  If the market has dropped for more than 10% in three consecutive trading session the SEC has to prohibit playing short (selling stocks short, buying put options, selling naked calls .....) for the next three trading days and whoever is in the short position has to receive a margin call to close the short position within these three days. There are a lot of traders and hedge funds who can turn small decline into a devastating stock market crash. I am sure that the SEC may come with better numbers, yet, I believe that we need some rule to protect the stock market and the economy from the big players who has big money and who does not care about economy crash if he/she can make money on it. People should be able to trade short, yet, in the moments when stock market crash starts to affect the economy people should not have interest in destroying the economy. Stock market has to have ability to crash. During the crash market cleans itself. However, the crash should not be amplified by those who playing short or it will be turned into economy damaging process.
  3.  Traders, hedge funds, portfolio managers should be prohibited to have more than $100,000,000 ($100 millions) in short position. Exception could be made only for those portfolio managers who has more that 70% of their funds in the long position, then the rest 30% of their funds even if is more than $100M could be in the short position. Wall Street should stimulate economy not crash it. Again, I am sure SEC can come with better numbers.
So, do you think such rules protects the economy and traders from the manipulators who does not care about the health of the economy, or such rules are a threat to the free stock market...

Stock Market Crash and Regulations

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Will pumping money in the economy help the economy to recover? Sorry, so far, we were not pumping money in the economy we were feeding the Wall Street. We are told that we have to take a look at the source of the problem and then eliminate it and only after that start treatment. Last year we took a look at the source of the problem and what was done? We have found that the main reason of the stock market crash is unregulated market, unregulated trading, unregulated Wall Street. We are told that the main reason is bad mortgages, however, who generated these bad mortgages??? Nobody even talks about that, in opposite we continue to feed unregulated animals. Why??? Will it help to recover??? We bail out a lot of public companies, and they continue asking for more money. Did nobody get it?

It could be weird that a trader is asking about more regulation on the market. We always were threatened that regulations mean end of the freedom. Wrong!!! Freedom starts with regulation and rules. We have police on the street, we have driving rules, we have judges and courts, we have criminal and civil laws - does it mean we are not free??? FREEDOM NEEDS TO BE PROTECTED. That is why we have all of this. The same is in the stock market. Free trading, free stock market has to be protected. When I mention about rules and regulation on the stock market I mean rules and regulations that protect economy from bubbles and crashes, rules and regulations that protects the investments from the stock market games.

After the Stock Market Crash in 1929 the following regulation were implemented:
  1. The Securities and Exchange Commission (SEC) was established;
  2.  The Glass-Stegall Act was passed to separated commercial and investment banking activities.
  3.  In 1933, the Federal Deposit Insurance Corporation (FDIC) was established to insure individual bank accounts for up to $100,000.

In 1987 after the stock market crashed, again we saw new regulation intendment to protect investors:

  1.  Uniform Margin Requirements;
  2.  Circuit Breakers. The New York Stock Exchange and the Chicago Mercantile Exchange instituted a circuit breaker mechanism, which halts trading on both exchanges for one hour should the Dow fall more than 250 points in a day, and for two hours, should it fall more than 400 points.

After Stock Market Crashed in 2000 new rules for day traders were introduced. Apparently previous Government was not able to do more.

We have recent stock market crash, NOTHING DONE. Haven't we learned anything from the recent crash?

Sunday, March 1, 2009

Question of the week: Citi

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Just a simple question:

The Government is converting preferred Citi (symbol: C) shares into common shares at $3.25. The current Citi stock price is $1.50. Taking into account that the Government now has 36% of Citi's common stocks, can we assume that by buying Citi's stocks at the price below $3.25 we may benefit in long term? - If not then we will lose together with the Government...

DJI Chart

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DJI chart
As you may see from the DJI chart above majority of the technical indicators are bearish by pointing to the possibility of further decline. By comparing the DJI index to the S&P 500 and Nasdaq 100 indexes I may see similar sentiment with difference that the Nasdaq 100 index is less oversold.

S&P 500 and Dow Jones Industrials have become heavily oversold during the last week. The DJI trading volume on Friday did beat all historical records. Even the technical analysis is more bearish, because of this high volume surges during the price decline and heavily oversold indexes, I would recommend monitoring chart on the intraday basis very closely. With such high volume, as a rule, comes strong reversal. On the S&P 500 and DJI the recent volume surges are much stronger than those that we saw in October and November of 2008 and all of them lead to reversal. I do not think that the recent high volume explosion is going to be an exception. We may see reversal and it could be tomorrow or it could be several days after. Taking into account the magnitude of this volume surges we may face very strong and sharp up move.