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  • Is the Market Ready to Turn?
    The Dow Jones Industrial Average (.DJI) has been on a steady uptrend for the past 9 months. During this time the Dow Jones, NASDAQ, and S&P have gained roughly 60%. This momentous buying has lead to the greatest 9 month gain in the markets has ever seen. During January 2010 - the Dow Jones, NASDAQ, and S&P have been trending upward, but this upward trend is weakening.
    During the past few days the financial markets have experienced high volatility. This amount of volatility is result of recent economic data and financial earnings. For example:

    Housing
         Starts: 557K vs. 574K (prior) 
         Permits: 653K vs. 584K (prior) 
         www.bloomberg.com

    PPI
    (M/M)
          0.2% vs. 1.8% (prior) 

    Jobs
         Claims: 482K vs. 444K (prior) 

    Investors were expecting positive news from the Housing, PPI, and Jobs related data, but with this diverging trend it is hard to predict a sustainable economic recovery out of the recession. While the job market is struggling to improve, this year’s economic data combined with the technical analysis below could result in a flat or negative outlook for 2011.

    Statistical Analysis:
                                                                                                 
    The chart below depicts the yearly percentage gains/loss the Dow Jones Industrial Average has experienced since 1929.
     Dow Jones Performance 1929 - 2009
    Since 1929 – Whenever the Dow Jones has closed a year with more than a 15% loss and the closed the following year with a gain of 15% or more, the third year has always been confined to a range of (+/-) 5%. http://finance.yahoo.com/q/hp?s=%5EDJI 
    Could this statistic hold for 2010? The technical analysis below can help provide some insight to where the buyers and sellers may be hiding for the near term.
    Technical Analysis:

    Dow Jones Industrial Average (5 Week)
    As you can see from above, the Dow Jones has closed below the key support level of 10,400. This may be a signal for traders to book profits before another possible 200-300 point move downward. Currently the Dow Jones is resting above the 76.4% Fibonacci Retracement level, a break lower could lead to a full retracement.
    Another technical indicator that suggests a possible full retracement to 10,300-10,200 level is the divergence formed between the Relative Strength Index and the Dow Jones. As Dow Jones Industrial Average makes new highs, the value of the RSI makes lower highs. This is an excellent example of bearish divergence. Bearish divergence happens when the price makes a new high, but the indicator fails to do the same and instead closes lower than the previous high.

    Dow Jones Industrial Average (2 Week)
    From the above chart it seems that the Dow Jones is having trouble breaking above the 200 day Moving Average. Failure to break higher, the initial break lower portrays a pessimistic view on the bullish trend we have seen the last few months. During this the last few weeks, the markets have moved sharply in different directions. These significant upward and downward movements reflect the Elliott Wave. The start of the wave was formed after the second peak in the market at 10,720. After the formation of the top, the first leg down equaled an approximate 200 point loss and was followed by a 70 point rally which rested the Dow Jones under the 200 day MA at 10,600. During the second day, the markets fell another 200 points. If this drop is followed by a 70 point rally, we could experience the third and final leg downward to the 10,300-10,200 support level. If the selling were to continue downward, the Dow Jones could possibly see 10,000 by months end.
    Additionally, the Relative Strength Index and the MACD do not provide much support for a sustainable rally in the next few weeks. As long as the Relative Strength Index resides below 50% and the MACD remains below 0, traders may feel a bearish bias in the market and continue to sell.

    - Tomorrows Results Today


    Disclosure: No Postions
    Tags: DIA, QQQ, SPY, dow jones, DJIA, INDU
    Jan 21 8:15 PM | Link | Comment!
  • Will Technical Analysis Dictate the Market?

    I would be surprised if you haven’t read an article regarding the Head-and-Shoulders formation in the SPY. Everyone and their mothers are talking about the formation and positioning themselves based off this technical pattern. Is it safe to join the bandwagon and follow the crowd?

    Depending on different technical indicators, different analyses could project the general market in different directions. As SPY and DIA are approaching their technical barriers, traders should be cautious when opening positions prior to a clear break in either direction.
    Shown below is a 3-month chart of SPY:

    SPY 3-month

    In the above chart, the Head-and-Shoulder pattern is apparent. The “Head” is represented by the red shaded circle, and the “Shoulders” are represented by the yellow shaded circles. The “Neckline” which the pattern formation rests upon is designated by the red line. As of the close on 7/08, the S&P is sitting tightly on the neckline. A clear break below the “Neckline” would most likely send the S&P to new monthly lows. 

    On the contrary, if the S&P begins to rally, the short-term support level (Yellow trend line) may be intact. On an interesting note, this trend line support corresponds with the 3-month Fibonacci 50% retracement level. With an intra-day view in mind, I believe that we will witness a bounce in the SPY which will retrace shares to 200-day Moving Average near $90/share.
    Even though I have a slightly bullish stance on the short-term projections for the S&P, I will maintain a close eye on the Head-and-Shoulder neckline. If the S&P were to fall even more, bears could take SPY to $85 which is roughly in line with the 61.8% Fibonacci retracement level.
    In regards to my very short-term bullish projection, the purchase of $88 strike July calls and $85 strike August puts would be ideal for a quick scalp.

    Disclosure: At time written, author did not own any securities of SPY, but soon to open either a long or short position in the coming days.

    Tags: SPY, DIA, Dow Jones, S P
    Jul 09 12:40 AM | Link | Comment!
  • Gold – Where are you going?
    Recently, the gold markets have seen extreme volatility. From April to May, the price of gold nearly increased $100/oz., roughly 12%, pushing GLD toward $97. Worries of inflation and the depreciation of the dollar have fueled gold to its 3 month highs. Contrary to the prior months, June has been retracing gold’s previous gain. For the month of June, gold has fallen approx. $80/ oz., roughly 8%, bringing GLD to $90. Can GLD break the downward momentum? To understand this, we must look at the details.
    Below is the 6-month chart for GLD:
     
    6 Month GLD
     
    We see that GLD has reached several key support levels:
    ·         50 Day Moving Average
    ·         100 Day Moving Average
    ·         6 month Trendline support
     
    These key support levels act as technical pivot points. Pivot Points are technical price points which act as support or resistance levels.  If support remains intact, one could assume that GLD will project upward towards its resistance level around $96.50. On the contrary, if support levels were to be broken, the trend could drag GLD lower towards the 200 Day-MA of $85.50.
     
    Would sitting on the sideline and waiting for a clear direction be the smart play? Option traders don’t believe so… Examining the front-month July option contracts, one could assume that option traders are taking a bullish stance on the precious metal.

     
    $90
    $92
    $95
    July Call
    2.25
    1.30
    .55
    Open Interest
    29,550
    12,133  
    10,642
     
     
     
     
     
    $90
    $88
    $84
    July PUT
    1.60
    .85
    .25
    Open Interest
    10,000
    5,079
    18,411

     
    The overall Open Interest Put/Call Ratio is roughly .55, meaning for every purchase of 1 Put, 2 Calls are bought. This low ratio, inferring a higher call open interest, could be an indicating sign that GLD support levels will stay intact. If the shares bounce off support levels, GLD could test resistance at $96.5.
    For those looking to commence a bullish position on GLD, consider the following analysis:
     
    Purchase one July $90 strike call option contract and one July $92 call option contract for a cost of $355 ($2.250 * 100 shares/contract + $1.30 * 100 shares/contract). As a suggestion to hedge your position, sell two July $95 call option contract for a cost of $110 ($.55 * 100 shares/contract).
     
    The final cost for your Bearish Put Spread should be $245 with a Break-Even price of $92.23.
     
    ***Note of Caution: If GLD breaks below technical support, a quick downside movement could occur.
     
    Disclosure: At time written, author did not own any securities of GLD. Author did own AUY July Calls.
     
    Disclaimer
    Throughout this passage, opinions are only stated.  Trade recommendations are strictly speculative, and do not guarantee anything. I highly advise everyone to do your own research and Due Diligence before investing.
    Jun 23 1:31 AM | Link | Comment!
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