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Michael Kudrna
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"The market can remain irrational longer than you can remain solvent.” John Maynard Keynes In an industry which caters to the greedy and already wealthy, it has become increasingly complex for the individual investor to find a path to success. “Buy and hold” is an inadequate investing... More
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  • Trading Range or a Hindenburg Omen Market Collapse? 0 comments
    Aug 24, 2010 12:17 AM | about stocks: NVDA, SIRI, ONP, OREX, ENTR

    The Monday morning vigor continued today but, after only a few minutes it quickly disappeared and we trended lower into the close.  The market continues to give us no real indicator of a clear direction however, if you are a believer of the yearly trading range like Doug Kass is, than we have more upside potential than downside at current levels.

    Today was another low volume day during this historically low volume season.  This does not help the traders and actually, many are just sitting on the sidelines with high levels of cash rather than trying to figure this market out.   When the volume returns, more traders will return.  Some say wait until Labor Day but I’m not overly optimistic the volume will return by then.

    LIVE STOCK MARKET CHAT DURING MARKET HOURS

    The good indicator today was the strong market breadth of about 5 to 1 at the opening to about 2 to 1 at the end of the day, even though we closed red.  Oil continues to be out of favor at the moment and it seems without oil helping the markets, we are going to struggle to move up.

    REQUEST FREE CHART ANALYSIS

    We seem to have some decent support in the S&P 500 around the July 20th low of 1057.  Ideally, we need to stay above that to avoid the fear of much more pain.  I’m keeping my eyes on the markets while I slowly accumulate on the long side but am quickly taking profits on any bounces we have.

    If you’re in favor of Doug Kass’s belief that this is just a trading range for the year, than we have slightly more upside potential than downside at the moment.  While I am currently trading around Kass’s belief, due to this accuracy so far this year, I still believe we have much more downside to come, I just don’t know when it will take place.  The “Hindenburg Omen” has received much buzz lately and after some research, it seems to have some credibility contrary to the buzz around the “Death Cross” earlier this year.  When it happens at least 3 times in a short timeframe, it seems to have much more accuracy of a market correction.  Currently, it has been confirmed twice.  The main theory behind this indicator seems to be based around finding major uncertainty in the markets.  This is determined when numerous stocks on the NYSE are hitting 52-week highs yet numerous stocks also hitting 52-week lows on a specific day with the uncertainty pointing towards future downside risk.  While I’m not trading according to the “Hindenburg Omen,” I am not discounting it and will use stop losses to protect myself as much as possible.

    FREE LEVEL 2 QUOTES WHILE YOU TRADE

    Due to the unfavorable markets, I’ve seen myself dabbling in penny land a bit more.  Penny stocks tend to be the last affected by the major markets. I like to find a good chart buildup like GoIP Global (OTCPK:GOIG) and patiently add a position over time but also very quickly take profits in increments as well.  This strategy continues to work for me when the big boards don’t want to be friendly.  I do not turn it into an investment as most penny stocks are momentum stocks only and never turn into the promising stock that the forums and get-rich-quick novices say they will be.

    In other portfolio news, I slowly added to Entropic Communications (NASDAQ:ENTR), Orient Paper (NYSEMKT:ONP), NVIDIA Corp (NASDAQ:NVDA) and Orexigen Therapeutics (NASDAQ:OREX) on weakness.  NVDA has had a nice run-up as of late and I attribute that to being oversold plus the Jim Cramer pump as he recommended buying NVDA on his show recently.  I’ve been trimming into the run-up and am now able to slowly add back as today we finally received a healthy pullback.  In this market, I’ve been more successful keeping positions smaller as the pain is bearable if we downtrend and also focusing on taking profits quickly as well.  It appears this is a market best served for daytrading as I also continue to focus on quick intraday trades around high volume names that are showing good intraday strength.

    If you can protect from losses in a bear market, that is just as good as making large gains in a bull market.  With that being said, I’m still in high levels of cash and waiting to deploy it when the market gives me a better indication of the direction it plans on moving.  With expected bad housing numbers tomorrow, expected poor claims on Thursday and the expected lower revision of GDP on Friday, we may have a rough week ahead for the bulls.  However, any unexpected better figures can give the bulls significant momentum as they squeeze the bears so be ready for some fast-paced bounces.

    Now I’ll move onto the requested chart analysis.  Below are some of the most requested charts of the past week.

    Sirius XM (NASDAQ:SIRI)

    A/D line: Recent downtrend on increasing volume

    ADX line: Bearish phase with the trend weak but slowly growing stronger

    MACD: Bearish

    CMF (21): Barely positive

    OBV: Confirmed all moves in the PPS, normal but on a downtrend

    RSI: Neutral territory but close to oversold

    Resistance:  Lots of upside resistance.

    A)    50-day SMA at $1

    B)    20-day SMA at $1.01

    C)    100-day SMA at $1.02

    Support:  $.90 on July 1st that hasn’t been broken since

    Analysis:  The good news is we are making higher lows since July but, the bad news is we are currently in a downtrend with lots of upside resistance.  The concerning part is the increased volume on down days, which is very bearish.  However, today the bulls fought a better battle and nearly closed even.  A high volume green day would help break out of the bearish trend but I’d look to start accumulating incrementally in SIRI with the assumption that the market itself will be sputtering therefore giving favorable risk/reward prices in SIRI.  We need some much higher volume green days to break past resistance though else we have limited upside potential for now.  Unless the market turns around, I find it hard to believe we will hit the $1.40 target anytime soon even though I consider SIRI undervalued.  The problem is most companies in this market are undervalued but that doesn’t mean the illogical beast known as the stock market will value them correctly anytime soon.

    --

    GoIP Global (OTCPK:GOIG)

    A/D line: Continued uptrend near a buy point if the trend continues

    ADX line: Fighting a trend change but no clear buy or sell point yet

    MACD: Slowly uptrending

    CMF (21): Positive but not by much

    OBV: Not much action in the OBV, fairly flat

    RSI: Neutral territory but closer to oversold still

    Resistance:  August 18th high of $.0097

    Support:  20-day SMA of $.0077

    Analysis:  GOIG is in a slight uptrend/accumulation phase making slightly higher lows, which is bullish.  The low volume the past few days is a concern though as low volume can break a chart’s support levels quickly and give mixed signals.  Ideally, we stay above the 20-day SMA and not even come close to testing it.  If the trend continues, right now is a buy point as you can see when the A/D line and the RSI touch the red line I drew.  The odds are in favor of upside potential, especially if some unexpected good news comes out.  I’m a buyer in increments at $.008 or below

    --

    NVIDIA Corp (NVDA)

    A/D line: Very slight uptrend which could be just a bounce

    ADX line: Fighting a trend change but no clear buy or sell point yet

    MACD: strong uptrend but needs a healthy pullback

    CMF (21): Negative but not by much however, the length of the negative trend is a concern

    OBV: Confirmed all moves, normal

    RSI: Neutral territory and slightly closer to oversold in a nice uptrend

    Resistance:  50-day SMA of $10.27 (tested today)

    Support:  20-day SMA of $9.44

    Analysis: NVDA has a recent breakout and now a healthy pullback today.  A sideways day would be further healthy for the chart before another move north to sustain the new trend.  It is healthy to see green days with high volume and red days with lighter volume.  We are also making higher lows as well which is bullish but, the trend is so short that it cannot be trusted yet.  I am buying on pullbacks in increments and booked some profits on the run-up.  I think some of this run-up was due to NVDA being oversold but also to Jim Cramer recommending it as a buy on his show.  With the overall market a concern, I’ll stick with buying in increments as long as we stay above the support level and look to book profits in increments when I can.

    As always, do your own homework to see if you agree.  Have a good night and I’ll see you in the morning.  Good luck out there.

    Mike





    Disclosure: Long NVDA, GOIG, SIRI, ONP, OREX, and ENTR but positions may change at any time
    Stocks: NVDA, SIRI, ONP, OREX, ENTR
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