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Victor Riesco
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I’m a financial analyst and professional investor from Santiago, Chile. I’m the owner of Global Trader, a brokerage and trading company for Chilean investors. For years I have studied the techniques of master investors and traders to create my own style. Asides from finance, I’m an avid... More
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Global Trading Pad
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  • Major Resistances Back in Play

    Here we are again.  Back into major resistance levels from which the overall market has failed to break out and move higher since the October bottom.

    We got a strong participation up day last Tuesday, which technically can be interpreted as a buy signal, but we need to see stronger confirmation with a solid breakout over resistance in the major indexes to see if this is finally for real.

    The S&P 500 is hitting its 200 day moving average today, a level it has headbanged and failed constantly. For a new, longer duration uptrend to start in the markets we need to take out this level with conviction and volume.

    The Dow Jones Industrials looks a bit better, trading over its 50-150-200 day moving averages and forming a inverted head and shoulders pattern with a neckline at 12.250 which is resistance.

    The NASDAQ has more work to do. It is facing resistance at 2600, which was a former support area, plus from its 50-150-200 day moving average which are trading above.  A strong NASDAQ leading gains is key to start a new market uptrend.

    In all the indexes we have been making higher lows since the October bottom and  various high Up/Down volume up days but price, which is the ultimate judge, still has to display strength. We have seen quality stocks setting up for breakouts that then constantly fail as the market reverses from resistance.

    Two other assets that I'm tracking that are a key "tell" about the next major move in the markets are the Dollar Index (tracked by the ETF UUP) and longer term treasuries (tracked by the ETF TLT).

    With the end of QE the dollar has been basing since May and attempted to breakout recently which then failed, sending markets higher.

    I think that going forward the FED will launch once again some sort of QE but until then, the dollar should remain firm and could rally higher which would be bearish for equities, commodities and precious metals.  For a new market uptrend to begin we need to see the Dollar stay put and fail to break out higher with strength.

    Treasuries are usually called the "rich men's cash" as major players in the market such as mutual funds and hedge funds park their money there when they are bearish in the stock market and sell stocks. 

    The US government has over 15 trillion in debt, a 100% Debt/GDP ratio, borrows 40 cents for every dollar spent and lost its AAA rating back in August. Despite all of that, treasuries are at record highs and  are offering historically low yields.

    This shows fear in the market, that institutions are under invested in stocks and that the market perceives the US debt as the best of the worst of "risk free" assets.

    The chart of TLT shows that is forming a pseudo "triple top" pattern and some topping characteristics.

    Bottom line:

    The market looks like it could break out higher but has failed to prove its strength when it counts. Despite the grim situation in Europe, the market can look beyond it or discount things that we still don't see and move higher.  

    Keep your watchlist ready in case it decides to start a new uptrend despite the bearish news and comments that have flooded the market during 2011.

    Best regards,

                      Victor Riesco

    Dec 23 11:39 AM | Link | Comment!
  • Markets Should Bottom Soon

    Markets fell hard on Wednesday to mark the sixth day of consecutive losses for the S&P 500. The continued sell off experienced by the markets made the current pre thanksgiving week one of the worst performing in history.

    The Euro crisis and the political deadlock of the "super committee" are the culprits of the current sell off according to the headlines.

    I attribute the selling to a macro problem. There is an ongoing deleveraging process in developed western economies that started in 2007.  Abscent of new monetary and fiscal stimulus ( QE2 ended this June and the US & European governments are cutting public spending) there is no fuel to boost short term GDP growth and the natural path to a protracted deflationary recession is resumed in the debt burdened developed economies. 

    Since the US congress will probably not pass Obama's 477 billion "jobs bill", the FED is doubtful of launching QE3 and in Europe there is no agreement for a local QE and TARP plan, markets started to discount the deflationary-recession scenario and thus stocks started to fall.

    Is the beginning of a downward deflationary spiral that will tank markets sharply lower?

    I don't know, but this threat of market apocalypse has surfaced various times during the last 3 years  and has always been avoided, at least for the moment. Politicians will try to kick the can and avoid the described scenario for as long as they can.

    From a strictly technical point of view, markets should be reaching a bottom soon. We are currently extremely oversold and the returns from similar conditions are heavily skewed to the upside on a short to mid term basis.

    My personal approach of gauging the breadth and participation of the world markets, the market monitor, is showing that 90% of its components are oversold. It doesn't get more pessimistic than that.  The recent August and October bottoms were reached with similar readings.

    Two other oversold indicators I track (charts by Decision Point) are also flashing an extreme oversold signal on the market. The % of S&P 500 stocks over their 50 day moving average is 10% and only 1.8% are over their 20 day moving average.

    In the other hand, 93.6% of S&P 500 stocks are hitting the bottom of their trend channel.

    You can observe that from similar levels in these indicators the market bottomed and had a powerful short term bounce or a significant mid to long term rally.

    Another thing that is noteworthy is seasonality. The highest returns for the S&P 500 are achieved from the end of November till the end of the year.  Coupled with the oversold conditions, this also skews expected market performance to the upside.

    In conclusion, the market should bottom soon and a nice rally is to be expected. For the swift trader this is an opportunity to make some trades to the upside expecting a sharp oversold bounce. During the last 3 months or so these type of trades have been the most profitable since breakouts have mostly failed.

    A tell that would signal that the market is getting ready to bottom is to watch the behavior of the leading growth and momentum stocks.  As of late their performance has been dismal, but if you start to see that this group is holding up or rallying in a weak market, the reversal will be beginning.

    Hopefully this time it won't be different and the world will not end during 2011. 

    Best regards,

                       Victor Riesco 

    Nov 24 11:26 PM | Link | Comment!
  • Markets are Now Oversold

    A fourth day of consecutive selling was experienced in most world indexes today.

    The sell pressure got "crash like"for part of day.  A lot of well known stocks like Amazon fell over 6% before bouncing as indexes found no support and buyers had fled the market.

    Although the markets closed off the lows, the selling was very intense and a lot of technical damage was done to leading stocks and the major indexes.  

    The S&P 500 broke down with ease from its 50 day moving average and the NASDAQ Composite has no clear visible support unitl the October lows.  Charts paint a bearish picture.

    Relentless sell pressure has made world markets (measured by my market monitor) to reach an extremely oversold condition. Yesterday markets were oversold but now they are  at an extreme that is rarely seen. This is confirmed on different technical indicators.  The recent October 4th low was made on similar readings.

    Given the current condition reached by the market, looking for some quality stocks to trade an oversold bounce is possible. However, given the high headline risk and grim macro picture, this has to be done using prudent risk management and stops in case we get start to crash lower, something that can't be disregarded in this volatile times.

    To play an oversold bounce, the ideal scenario would be to see a continuation of the sell pressure and panic to set into the market tomorrow. 

    For tomorrow we have a couple of macro data points which aren't very important unless they are far superior or lower than expectations. At the moment, better than expected data from the US economy (yet still weak and with sluggish growth) are being ignored by the markets.

    Best regards,

                          Victor Riesco

    Nov 22 8:10 AM | Link | Comment!
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