Sunday, May 31, 2009

Weekly Watchlist 6/1

Going into June the markets are still range bound but looking a bit more bullish imo. Looking at weekly SPX chart on the left going back 2 years you can see that a longer term inverse head and shoulders is forming and the right shoulder is in the works currently. Whether this plays out or not we will have to watch. Its interesting because the neckline, resistance level, coincides almost exactly with the 200 day ema on the daily chart. On the weekly we have the 20 ema now rising and price consolidating above.

I think we have the chance to rally higher in the coming weeks into the high 900s. We have rallied sharply off the bottom in 3 months time but still its roughly only a 38.2% retracement from the collapse from 1300 on the SPX in Sept 08 to the 666 low in March 09. Its no surprise we are consolidating and moving sideways the last few weeks after hitting that fibonacci level. Next up is the 50% retrace. That will be at 989 and I think if we get over 930ish you should be looking for and expecting 989 coming next. And fyi the 61.8% retracement of the selloff sits up at 1064 so it would be quite the move if we can test those levels but its definitely possible in the next 3-6 months.

On the daily SPX chart the 200 day ema is at 943 and at this point I believe is too close NOT to hit. That is why I have an upside bias going into June. It seems the 870-876 area has and WILL continue to hold as rock solid support. This action we are seeing the last few months is bull market action, so get used to it. We are in a bull market. How long does it last? Who cares. Trade it as it appears.

This week's watchlist:


Best bet: MSFT Buy trigger= 20.87 Stop loss= 19.40 Target= 23

Thursday, May 28, 2009

Sideways City

Thursday the SPX grinded mostly sideways early on before ended the day on a plus note closing around 907. There are several bullish things coming together in other markets to make me think the probability of a higher SPX is coming. The EUR/JPY is rising lately sharply telling us that people are taking more risk and that means stocks will see more buying. Also the dollar is not showing much strength at all even on these weak bounces this week. This should continute to boost stocks in the intermediate term. Lastly, energy, banks and tech--the sectors that began this rally--are still showing bullish patterns and this is all good for the SPX going into June. I think the 875 area could prove to be a major floor in the SPX.

With that said I think for Friday we are going to be stuck in this range for a bit more. 890-910 seems to be a lock for the weekly close. My guess is we pullback a smidge Friday. The pivot for Friday is 900 even and that important level could act as a magnet for this market. I see a rather quiet day coming but we shall see. Next week should be a lot more interesting imo as the SPX is poised for a nice sized move in either direction; with my bias being up.

Wednesday, May 27, 2009

Afternoon Dive

On Wednesday the market seemed to be chugging along just fine above 900 and even 910 until midday when the bond auction saw less than enthusiastic demand sending yields straight up to 3.7% on the 10 year. This sent stocks falling and falling sharply. We ended the day on a bearish note as the 60 min and the 15 min charts both rolled over below key moving average support and the SPX closed up shop in the low 890s. At this point it looks likely that the SPX will retrace further to the 876 area where I see the next level of support.

For Thursday I want to be expecting this continued pullback and sell into weak rallies. The pivot is at 898.50 and price is already below that so that mark should become intraday resistance assuming we even test it. I would like to see the 876 level hold and see the market continue higher into June. However, 930 on the SPX and 8500 on the Dow is fierce resistance that the market will have to overcome if any continuation of a rally commences. The break of 876 would be bearish as I think then the market could retest the 850s and quite possibly the 830s but for now its just focus on the 876 support level.

Tuesday, May 26, 2009

Rally Time?

First off I wanted to say sorry for not being able to post the weekly outlook yesterday as I have been out of town with no internet since last week and finally back today. Secondly, wow what a rally in the markets out of the gate on Tuesday! After the consumer confidence number defied logic the SPX ripped thru 900 and closed at 910. Definitely an important bullish day but on light volume and thats what has me a bit cautious after a long weekend. I still am thinking we could more or less trade in a range between 880 and 930 for the remainder of the month. The break of either direction should tell us the direction of the next leg the market takes for the summer perhaps.

For Wednesday I want to be cautiously bullish and expecting the market to test support around 900. The pivot is at 899.25 so that area could see some buyers step in intraday and lift this market higher. Like I said earlier I would not be making too many big bets in either direction until this range we are in is broken.

In the coming weeks I am hoping to start issuing a weekly watchlist and focusing on stocks with great trading setups on the charts.

Wednesday, May 20, 2009

Working For The Weekend

Well first off I just wanted to note that I will be away from the screen until Monday as I am headed out of town for the long weekend. It will be nice to get away from the markets for a few days. Anywho, Wednesday was an interesting day from a chart standpoint. The SPX raced higher to tag the 925 area before reversing course and closing lower on the day. Pretty bearish if you ask me. Why dat?

Well the overall market and even some of the key stocks (like GS as I posted earlier) had ugly outside reversals and failed to break last week's highs. At the same time, momentum indicators are diverging down and rolling over. I would be cautious for the remainder of the week and approach the markets expecting a further pullback. It's tough to say when since we have a holiday weekend coming so the volume will be light and they might wait till next week to sell it down but I am starting to think the SPX could have a date with 850 soon.

For Thursday the pivot on the ES futures is at 907.50 and price is far below that tonight so it could either turn out to be a continuation selloff or a sideways boring kinda day. Whatever it is don't be looking at much upside here.

GS Bear Call Spread

Goldman Sachs (GS) has been a very strong stock lately as it got to the 144 area. I think it is getting a bit heavy up here and as the market is pulling back today unable to eclipse last week's resistance I think GS could retrace back into the 120s in the coming weeks. The daily candles on GS also has a bit of a bearish tone to them the last few days. Lastly, I see some negative divergence on the MACD and RSI indicators as they roll over. I am selling a GS June call spread.

Sell the June 140/145 call spread for 1.75 or better.

Your max risk on this position is 3.25 if GS closes above 145 at June expiration.

Max gain is the initial credit you take in and keep if GS is below 140 at exp.

Your breakeven on this trade occurs at 141.75 at exp.

I think this is a nice moderately bearish trade if you expect a grind lower as I do. And of course, you can always take profits before this spread expires.

Tuesday, May 19, 2009

All About SPX 900

Tuesday the markets started off strong but again on low volume and finally the end of day fade came in and sellers pushed the SPX down to 908. So we didn't form the most bullish candle on the daily but there is some support below here at 900. That is the level I will be watching mid week to determine if this recent pop is a fakeout or not. My gut tells me we could see further selling and a retracement back into the 850s. But I will let the charts tell if that gut is correct.

On Wednesday the pivot on the ES futures is 908.25 and price is a bit below that tonight so I would think that level, combined with the resistance from the last hour selling today, could prove to be a ceiling for now. On the downside I think if we break 900 then a gap fill down to 885 is likely. Below that and this market is probably going to grind a bit lower; but I do not think it will be sharp, rather a slow grind. On the other hand if this price breaks above the pivot then all bets are off to the downside.

Monday, May 18, 2009

How Do You Like Your Gaps?

Well we got a runaway gap in the markets as the SPX raced right thru all sorts of levels alllll day long and ended up closing up around 910. Although the volume was less than strong you cannot ignore price action like we saw today. At the same time the VIX collapsed to close near 30. Yes, the long weekend is being priced into the VIX but let's not be mistaken; it got smacked.

For now it looks as if the 875 level and 20 day ema on the SPX held as support and the market looks poised to continue higher to challenge recent highs around 930. We still have then downtrending 200 day ema up at 947 as well so keep an eye on that. Indicators on the SPX switched a bit more positive after Monday even without fully getting oversold recently. The Nasdaq was also a leader on the day as the QQQQ is now above its 200 day and looks extremely bullish above 34 imo.

For Tuesday I would have an upside bias with the expectation that 900 will hold on any pullback. The pivot on the ES futures sits at 901.75 and should show strong support for the market if it is to continue higher. This 910-915 area has some resistance from last week but above that and we could easily see 930 come into play by the end of the week.

Sunday, May 17, 2009

The Weekly Trade 5/18

Last week the SPX ended the week at 882 and it was the first negative week in awhile. It came down to rest right at the 20 day ema and below here we have the 50 day ema at 854. I think this week should be a "line in the sand" type of week. By this I mean that the 875 level will dictate where we trade to next. It has significant support so I would not be surprised to see buyers emerge here but until we are back above 900 I will not be convinced that a pullback has concluded. Something tells me the market wants to come back to 850 or so to test that 50 day and scare out some longs before stabilizing.

Tuesday- Building Permits, Housing Starts

Wednesday- FOMC Minutes

Thursday- Jobless Claims, Leading Indicators, Philly Fed

The housing data early this week along with earnings out of HD and LOW should get the juices flowing on the housing bottom argument. Also, remember the following weekend is a long weekend so the volume towards the end of week should get a bit thin overall as some head out for vacation.

For Monday I want to start neutral and let the market establish a trend to guide my trading. I would be expecting a continued pullback. The daily pivot on the ES futures is 885. Any bounce into this area should see sellers step in to make a stand. If we are unable to trade above that 885 mark on the ES then I would think 875 is a sure bet and perhaps a grind back to 850 this week. Like I said earlier I would not be getting too bullish unless the market had a nice move back to 900. Be rigid in your disciplines but flexible in your expectations.

Friday, May 15, 2009

Options Ex Friday

Going into the last day of the week the market is facing options expiration for the month of May and that just means you should expect some wacky choppy volatile action. The market is in pullback mode even though Thursday saw a slight bounce back into the 890s. It basically only retraced half of Wednesday's losses and even faded in the last hour so nothing was too impressive. Gold also didn't pullback much which is what you want to see lately to indicate a true appetite for risk. Overall I would still be looking for this market to retest that 875 mark maybe even on Friday with even a possible 850-860 retest next week.

For Friday I would be short biased especially if they hold it underneath the daily pivot on the ES futures of 889. Above that and they may try to test Thursday's highs or even the 900 mark which is probably home to plenty of open interest on both sides so it could be a interesting tug of war in the last few hours. Overall a day I would rather stay light on the trading side. Enjoy the weekend.

Wednesday, May 13, 2009

H&S Breakdown

The SPX gapped down nicely on Wednesday confirming the head and shoulders pattern I touched on yesterday and have highlighted in the chart to the left. The market looks to have topped out at least in the short term at that 930 SPX level that I predicted over a month ago.

Today we came back to the 20 day ema which was at 881. I have drawn in a fibonacci retracement from our swing lows down at 823 to the highs near 930 on the ES futures chart and a 50% retrace brings us back to 875; which coincidently was the crucial resistance we broke out of recently. I would expect some decent support at this 875 level in the coming days and if we lose it then we most likely should get to the 61.8% retrace level which sits at 863, as shown in the chart. Below that and 850 is a sure bet but lets just see how the market reacts to 875 for now.

Thursday the pivot is 887 on the ES futures and that should pose as tough resistance intraday. I fully expect the market to test that 875 mark below us especially since there appears to be a gap from a few week's back at that area. So with that said the bias for the end of the week is down but don't be surprised to see the levels just below hold strongly.

Tuesday, May 12, 2009

POT Bull Put Spread

Potash (POT) has been grinding higher as of late and has just broken above its 200 day ema around 100. The chart looks very bullish imo and should continue higher into the summer months. I was considering looking at a straight call purchase here as it appears to be breaking out or take a longer term view and go out to Sept. to buy a call spread. Instead I thought those trades would be best for the first retest of the 100 area after it breaks out. So let's sell a put spread for now.

Sell the June 95/90 put spread for a $1.65 or better.

The max loss on this position would be the difference between the strikes width and the initial credit. So that loss of 3.35 would be incurred if POT is below 90 at June exp.

Max gain is that initial credit you take in and you keep if POT is above 95 at June exp.

Breakeven on this trade occurs at 93.35.

Turn Around Tuesday

Tuesday the SPX started the day negative and sold off down to the mid 890s before staging a late day comeback rally that closed up around 910. It was definitely a nice rebound but only gets us back to where we struggled to hold onto on Monday. There is a bit of resistance in this mid 910s area and it sort of looks like the market could be forming a decent head and shoulders pattern on the 30min chart going back to last week. If we do break that mid 890s level then the H&S would confirm a move down to 875 possibly.

For Wednesday I think its best to begin neutral and allow the market to tell you if it wants to get over 915 or not. The pivot for Wednesday is at 909.50 on the ES futures. That should be a good line in the sand to determine the trend for the day. Again, we are very overbought but that doesn't mean the market will selloff. I'd rather wait for the market to tell me its tired and a break below 895 would probably do that for me. Otherwise we could still see 950 tagged this week before options ex. Trade safe.

Monday, May 11, 2009

Buy The Dip?

Monday we saw a gap down in the market and it never really recovered as we closed near the lows at 909 or so. So is this a buyable dip? I think it is. We are in need of a pullback but as long as its shallow and is tough to push lower then the buyers will emerge. There is good support below here at 900 and then again down at 875. I would prefer if we held the 875 on a retest as that was the last big resistance the market consolidated beneath before breaking out higher. Over the next week we could very well consolidate or go sideways and that would count just as well as a pullback. Time is just as important as price in the markets.

For Tuesday I would be expecting further selling and a test of 900 on the ES futures. The pivot is at 910.25 and price is a bit below that tonight. If the market loses 900 then it could be headed back to 875 this week as options expiration is on Friday and really could exaggerate the move in either direction. Although I am expecting this market to pullback, if we hold 900 and grind higher then I still think 950 is not too far away to tag sooner or later.

Sunday, May 10, 2009

The Weekly Trade 5/11

This week the market looks to build upon yet another week of positive gains. Last week ended strong as the SPX finished at 929 and is now just below the 200 day ema which sits up at 950. That seems like a legitimate target for this week as the rally does not seem to be giving in just yet. That key longer term moving average over head is just too close for us to not test it imo. It will surely provide some wicked resistance once it is reached however.

Tuesday- Trade Balance

Wednesday- Retail Sales, Business Inventories

Thursday- Jobless Claims, PPI

Friday- CPI, Empire Manufacturing, Net Long Term Tic Flows, Michigan Sentiment, Capacity Utilization, Industrial Production

Three sectors have rallied us since March; Banks, tech, and energy. If these sectors continue to work then we should continue higher. We need 2 of 3 of these sectors to push us higher if the rally is to continue. So far so good, but pullbacks are healthy in bull markets so I wouldn't mind to see one soon. Whether it comes this week or not, you need to be expecting it at least because this feels like we are at a baseball game and the seventh inning stretch completed a few innings ago.

For Monday, I want to start with a bullish bias and stay long biased as long as the ES futures stay over the daily pivot which happens to be at 910.50. Below that and we could start to see more selling pressure so intraday bias would turn more negative imo. If we hold that pivot and grind higher I think this market could easily challenge that 200 day ema up at 950 this week. Trade safe.

Thursday, May 7, 2009

Profit Taking

On Thursday the ES hit a overnight high of 929.50 and then sold off into the 900 area where it found support and bounced into the close. It was pretty bearish today looking at the daily candlestick on the charts. We formed a ugly little candle that should give us a multi-day pullback imo. 900 is good support but we even have room down to 875 before any big support comes into play. We are definitely overdue for some profit taking so that's what I will call it.

For Friday I would be expecting more downside and it looks like the jobs report is setting us up for that as the ADP numbers were a bit too optimistic. The pivot is 899 for Friday and price is higher tonight but if we lose that pivot then I doubt many longs wanna hold on into the weekend so we could see some pressure to sell. I am still bullish longer term into the summer but a multi-day pullback is probable so prepare for that. Trade safe.

Wednesday, May 6, 2009

Learning To Fly

The market is sure learning to fly as of late and seems to not remember how to pullback. We flew right thru 900 recently and today hit nearly 920 on the ES. I have been looking for 930 or so in the SPX since about late March and we are just about there. I would not be piling into longs up here after such a run but at the same time I wouldn't short this with my enemy's money. I would rather wait to see a breakdown on the 60min chart to start shorting but for now why not just scalp the long side some more? The momoentum is definitely there.

For Thursday the pivot is at 899.25 and price is well above that right now so I would think that the 900 area would hold as nice support intraday and if we were to trade down into the low 900s it would offer a nice buying opportunity in the ES futures. We shall see what happens but I would stay long-biased and just not be surprised to see a fading of this rally sometime soon. But wait for the market to tell you it wants to fade before you convince yourself of it.

Tuesday, May 5, 2009

CSCO Bull Put Spread

Cisco (CSCO) is reporting earnings after the bell and the stock has been grinding up higher lately with the market rally. The stock nearly hit 20 a few days ago and has great moving average support below here at the 18-18.50 level. Even though the stock has moved up nicely already I would much rather be bullish on it than bearish. I think the trade is to sell a put spread.

The implied volatility is a smidge higher than the HV but both are in the low to mid 40s so not too much of a discrepancy. I prefer to sell options into earnings unless I really think I know something. CSCO past earnings reactions have been relatively muted with the largest move of the past year being about 7%.

Sell the May 20/18 put spread for 80 cents or better.

Max gain on this trade is the initial credit you take in. If CSCO is above 20 next friday you keep the credit.

Max loss of 1.20 occurs below 18.

Breakeven on this trade at expiration occurs when the stock is at 19.20. So it can stay stable and you still win.

You could also just sell naked puts on CSCO in this situation using perhaps the June options if you are more bullish long term. I wanted to highlight the spread trade since it requires less margin and has less risk. But naked put sales are virtually the same thing as covered calls so if you don't mind owning the stock at a certain level then sell some puts naked by all means.

Stress Test

Tuesday the markets started off negative and choppy but held the low 890s in the ES and recovered sharply into the close. You can tell the difference in the market lately versus 6 months ago. Shorts are covering into the close now afraid of being short overnight. Back in the fall it was the longs who were afraid to hold overnight and expose themselves to any announcements. That's a healthy sign on the sentiment front. This rally is still trending nicely and the close above 900 for consecutive days is impressive. I think we are still due for a pullback and it may come Tuesday as the futures are selling off to 892 tonight on news that BAC needs more capital. If we get a pullback under 890 then they might even push it back to 875ish. We have terrific support below us so I am not concerned if we just pullback a bit.

For Wednesday the pivot is at 900.50 and price is well below that so I think we could have a tough time getting above that 900 area. Expect a pullback to the 875-880 mark but again, this market is bullish so don't expect too much downside if they start to take profits as it look like they might.

Monday, May 4, 2009

Blast Off

Monday was a nice bullish day that started off with the bulls charging and ended with the bulls charging. The shorts are loving this lol. SPX broke through 900 late in the day and had a very strong last 20 minutes where it ended up at 907. The resistance of 875 has been broken decisively and now should stand as support if we get a pullback at some point (which is looking like its way overdue, but the market doesn't seem to care). Above here and we see the 930 area as a potential next stop with a possible target of 940. I think we are about in the 7th inning of this rally so don't be piling in up here above 900 but understand we have seen the lows and dips from here on out should probably be bought.

For Tuesday the pivot on the ES is at 895.75 and price is trading about 900 right now. I think the pivot should be watched but I think even a pullback to the 890 area should be bought. My bias is higher and you would probably have to push this market below 875 to get me to re-evaluate that opinion. There still seems to be some shorts out there talking like this rally is a joke. Doesn't seem like a joke to me. Good though because those bears I see talking will be fueling us higher until they buy in. Remember the crowd is right during the trends but wrong at both ends.

Sunday, May 3, 2009

The Weekly Trade 5/4

Going into the first full week of May the SPX finished off last week very strong with a close at 877. This week should be a decision for the markets as we are very important resistance on the charts and could break out and go right through 900 or breakdown and go below 850. It really comes right down to that 875 area and who wins the tug of war. The bulls or the bears. I have thought the past week or so would bring us a pullback that could be shallow but it really never transpired. We got more consolidation than anything else really. And that's bullish imo.

Looking at the chart to the left you can see we are holding strong above the 20 and 50 day ema's and the 200 ema is overhead now at the 952 mark. Next big resistance above here is the 900 level and above that I think we have a clear shot to see 930-940 by June. That would roughly equate to about 9k in the Dow; which is what I have been saying for over a month. This market rally is surprising the bears and the longer it goes without faltering the more nervous the shorts will be. Which leads to them giving up and fueling the rally even higher.

Monday- Construction Spending, Pending Home Sales

Tuesday- ISM Services

Wednesday- ADP Employment

Thursday- Jobless Claims, Productivity, Unit Labor Costs

Friday- Nonfarm Payrolls, Wholesale Inventories

Earnings will be winding down and the stress test news will be headlines but should be meaningless as the market does a good job of pricing things in ahead of time. Look for the Nasdaq to continue leading this market if the rally continues. Oil showed signs of breaking out last week and there are lots of good setups in the energy sector so that could give the market more fuel if that sector joined the rally. As long as banks don't give it up then I think we have more upside coming this month.

For Monday, I want to be looking to buy any dip into the low 870s on the ES. The pivot sits at 872.50 and should provide good support for this market if it is going to rally on Monday. Below that area and they could push it to the lows of friday which were in the mid 860s. If we break that level then we will re-evaluate to the downside. For now expect this market to challenge last weeks highs and possibly make new ones. Trade safe.