Friday, November 28, 2008

The Case For A Renewal Of The Downtrend

(Click To Enlarge Chart)

Over the month of November I have regularly presented the case for a bottom within the time window from November 26 to December 6. However, it would prudent to look at the alternate possibility that the decline that began in August is still in force. One excellent confirming indicator of the overall markets trend is the relative strength of the Nasdaq 100. The bottom panel of the above chart shows the QQQQ relative strength measured against the Wilshire 5000 index with a 10 period sma(green) and a 50 period sma(black). Uptrends in the broader markets have consistently occurred with the 10sma of the QQQQ RS greater than the 50sma. Notice how prior to the March to June rally the 10sma was trending upward and crossed above the 50sma when the Qs broke out. The RS itself was above the 10sma at that time as well. The reverse was true in September as the market was breaking down. Currently, with a highly heralded 5 day rally, the QQQQ RS is heading toward its October/November lows while the 10sma is trending down and below the 50sma. This does not support a continuation of the current rally. Perhaps we will see a retest of the November lows , or perhaps we will see a greater acceleration in the downtrend, but unless the Qs rally hard next week to move into a leadership role, I suspect the rally will falter.

In addition, we see that the RSI5 is nearly at 100 while the RSI14 has not moved above 50. The RSI14 will need to move above 50 to confirm this rally has legs. Finally, the McClellan Oscillator (not shown), has moved back up to its second highest level of the last two years. Having done so after only 5 days of rally on declining volume is certainly a negative. The indexes are approaching resistance at the 25dema, and I would consider any reversal on higher volume as a possible short opportunity for a retest of the November lows.

The following look like interesting short candidates: AAPL, BRCM, FAST, IACI, JOYG, MICC, PCAR, RIMM.

While I look to take advantage of a possible decline next week, I am still nibbling on the long side on leading stocks that could break out if we do get a Santa Claus rally. QCOR, PETS, EBS are doing well and I also like ISYS and SQNM.

As a side note, I did not see a lot of traffic at the stores for this crucial "Black Friday" sales day. I did not see a lot of traffic anywhere. My wife said she did not see any really good deals on the items she was looking for and felt like the sales ads were misleading. Perhaps there were deals on things we were not interested in, but her view on these things has usually been right in the past. I expect the results from today will be worse than expected which will be another negative for next week.

Wednesday, November 26, 2008

Happy Thanksgiving!

The rally continued today but the advance occurred on lighter volume. Given the holiday, that may or may not be meaningful. It is beginning to look like the rally is close to completing 3 waves up from last week's low. This could be a part of a larger upward corrective rally at the beginning of wave (4) or it could be a countertrend rally in the continuing decline. As mentioned before, we will need to see the quality of the next decline to determine the most probable outcome. Fibonacci resistance is dead ahead at the .618 retracement from the 11/4 high at 8812 in the Dow and 30.59 in the Qs. Beyond that the next major resistance is the 50dema. This will be the first test of the 50dema since the August highs and will likely be a least a short term sell.

According to my understanding of IBDs rules, today's rally did not qualify as a follow-through day. Due to the declining volume I have not taken a long position in the indexes. Perhaps Friday's reversal was enough of a signal, but there were not enough indications for me to justify it at the time. Should we see a pullback on lighter volume or a retest of last week's lows, I will be taking a position with an initial target of the 50dema. If that level is surpassed, the 200dema is not out of the question. The typical seasonal pattern suggests we may see some sort of pullback next week.

I continue to suspect that trading over the next few weeks will be the most difficult trading environment that we have seen in several years. We are not likely to see sustained trends on the daily and weekly charts, which will cause a great many whipsaws for traders. Caution and protection of capital are most important at this time. There is no point is giving back gains from the extraordinary decline that we have just experienced by unproductive trading in a choppy market. Smaller positions should be considered. If a larger intermediate untrend is about to unfold there will be time to get on board, but for now there are few indications that could be the case. For now the monthly and weekly trends are still down and the trades should be weighted in that direction. We can begin to alter that view once the high of the low month has been cleared on volume. For the Qs that is 34.01 and for the Dow it is 9653.95.

Again, the action next week will give us important information to evaluate the strength of this rally.

Have a Happy Thanksgiving and enjoy the time off.

Tuesday, November 25, 2008

MACD Buy Signal

A MACD buy signal has now been signaled on the major indexes due to a positive divergence. However, caution is advised as volume has been declining during this rally and a pullback, at least, is expected before further advances.

Monday, November 24, 2008

Rally Underway

Today's rally in the Dow completed 5 waves up from Friday's low on the intraday charts indicating that we should see some follow-through after a pullback. However, I do not see 5 waves up in the Qs and we did not get a confirmed macd buy signal today so caution is advised. The quality of the pullback from today's high may provide some insight. At this point I think it is too early to declare that last Friday's low was the low of wave (3). I still think there is a possibility that we could see a retest after Thanksgiving.

One piece of evidence that supports that the low is in is the breakdown in the QQV and the VIX today. However, it is possible that we could see a lower low even as the volatility declines.

I will continue to look for long opportunities in individual stocks as we move into December.

Of interest: EBS, LHCG, PETS, DV, CEPH.

Friday, November 21, 2008

Advisors Throwing In The Towel

I was not at all surprised to see a rally today. As I said yesterday, I was sure a rally would come after being stopped out. But this should not be a surprise given what has happened in the last week. Many traders have probably jumped in to try and pick a bottom given the bullish divergences setting up. After these same traders were stopped out by yesterday's decline below the SP500 low of October 2002, there was little selling pressure today. What is most interesting is that a number of advisors that have been saying that the market was building a bottom have now thrown in the towel and turned bearish. We see predictions of Dow 6000 and SP500 at 600 just ahead. I agree that eventually these levels will be seen, but not near term. To me this capitulation by the bullish holdouts is a bullish sign, particularly since we are within days of my calculated cycle low date of 11/26.

At this point I see two scenarios playing out next week. Number one is that we trade up on Monday and down into Wednesday mid-day to put in the final low of wave (3), or number two, we trade sideways to slightly up next week followed by selling into December 6+/- to put in the final low. If we get a follow-through day without another low, then the low is already in as of yesterday. Given the typically bullish bias surrounding Thanksgiving I will be looking to take another long position on any new low on Wednesday. If we do not see a new low, I will wait for a new low after Dec 1, or a follow-through day or macd buy signal to enter a new long position. I will then add to any long position on subsequent trend following buy signals such as the 3 Week Rule or Monthly-Weekly-Daily Rules shown in the System Tracker.

What I am not expecting is another extraordinary sell-off ala October. If it happens, then so be it, but the time is running out.

Thursday, November 20, 2008

S&P Closes Below 2002 Low

It is hard to believe that in a little over 12 months the entire 5 year rally from 2002 to 2007 has been wiped out. I have been confident this day was coming, but still it has been amazing to witness it. However, we should not lose perspective on what this may mean in the coming weeks. As John Carter of is fond of saying, "The first test is a fade, the second test is a go with". In other words, this test of the 2002 lows is more likely to lead to a substantial rally than continued decline. (Particularly since I was stopped out of my long index positions today.)

I have been continually scaling out of short positions over the last two weeks and am mostly in cash while I wait for leading stocks to break out in the coming rally. This is a time for patience, not chasing a trend that is in its last stages. Think about it, the Dow could easily hit its 2002 low tomorrow which is just 355 points away.

Wednesday, November 19, 2008

Low In Sight

I don't know how much lower the markets will go, but I think the end of this decline is in sight. I am not adding new short positions at this time, but continuing to exit existing positions on new lows. I have a little room left before my stops are hit in my index long positions from last Friday's close. There is a good chance we will see a bounce tomorrow into options expiration Friday. I will not exit these long positions unless my stops are hit, as the risk for a surprise rally, in my opinion is significant.

The recent index long positions I entered were clearly countertrend, and based solely on the expectation of a continuation of last Thursday's rally. I was not alone in this view as Mike Paulenoff was also looking for a continuation. (See Mike's free market analysis at the link on the left - click on Markets) One thing I would like to say about why I am still in these long positions is that I do not use very tight stops. In this case, I am using 1/2 ATR(10) - daily below last Thursday's low. For years, I used tight stops only to get stopped out and see positions move to my expected targets. My profitability improved dramatically when I reduced position size and widened my stops. For most trend following systems I use a minimum of the lesser of a 3 ATR(10) stop or 2 ATR(10) below the nearest swing low, meaning if 2 ATR(10) below the nearest swing low is closer to my entry I will use that instead of the 3 ATR(10) stop. I rarely use discretion to exit early due to sell signals when a position moves against me, as at least half the time I have found I would not have been stopped out and the position recovered to hit my targets. By being consistent in this I have improved my results.

The important point here is that if you are right on the larger trend, you may find it easier to be consistently profitable with wider stops and smaller positions. And however you choose to exit, be consistent in your approach.

Tuesday, November 18, 2008

Positive Close But Overall Lackluster Performance

The indexes have managed to stay above last Thursday's low, but the depth of the retracement calls into question the chances of a wave c thrust to above the 11/4 highs. Unless we get a powerful rally tomorrow, it appears that we are due for wave iv of an ending diagonal triangle that should peak around the 20ema by the end of the week. Thereafter, we should see one more new low to complete the decline. Even so, many stocks are showing signs of weakening downside momentum and the reward for shorting is probably too small to take any chances there. I continue to exit individual short positions on new lows.

Wave v of 5 down will probably last no more than 3 days. Swing index shorts may be a possibility, but don't overstay your welcome. The target should only be slightly below last Thursday's low.

Monday, November 17, 2008

Rally Still Intact

The markets closed above the 11/13 low as well as the 10/24 and 10/27 lows on lighter volume today. The action since last Thursday's high appears corrective and so I am still expecting another upmove. The quality of that move and whether or not it moves above the 11/10 high will determine if I hold on to the index long positions for the 50dema or take profits earlier. Of course, I am presently in the red from from Friday's entry near the close.

Regardless whether this rally makes it to the 50dema or not, the next swing low should be one of intermediate degree, and will be another excellent long opportunity. Positive divergences are beginning to develop on a number of indicators suggesting that a low of significance is forming. The Jan 08 and Mar 08 lows were separated by 33 trading days (fib 34 less 1). We are currently at 26 trading days from the Oct 10 low. It is interesting to note that Nov 26 is 34 trading days from the Oct 10 low, yet another confirmation of the estimated 11/26 cycle low. With that day also falling before the typically bullish Thanksgiving holiday period, I do not want to be short at that time.

If that does turn out to be the intermediate wave (3) low, we can expect 6 to 8 weeks for intermediate wave (4) to play out. However, we can also expect that wave (4) will be nearly as difficult to trade as wave 4 has been, except that the swings should be larger and longer which should make things a little easier. The reason for this is the elliott wave guideline that waves 2 and 4 generally alternate in structure. Wave (2) was a sharp upward correction. Therefore, wave (4) should be a flat or a triangle or some combination thereof.

Of course, this is all predicated on the supposition that this primary degree decline from October 2007 will occur in 5 waves. There is always the possibility that it is completing now as a 3 wave decline which could theoretically lead to an advance to new highs or 3 wave upward correction that would be larger than a 4th wave. Clearly, the advance to new highs is a long shot, but we should always keep all the options on the table until we can rule them out. Until I am proven otherwise, I will be trading this next intermediate wave rally as if it is a 4th wave.

One point I would like to make is that now is the time to be looking for good individual stock trades setting up. Leading stocks are setting up now an may be breaking out ahead of the market lows. Testing the waters over the next week may be a good idea.

Here are some of the stocks I am looking at as candidates on the long side:


Sunday, November 16, 2008

Rally To Continue?

I am long the DDM and the QLD from Friday's close. I did not get as good an entry as I had hoped as I entered with about 8 minutes to go and the indexes continued to fall strongly in those last few minutes. The Qs appear to have completed a small 2nd or b wave flat. There could be some downside Monday morning, but the 11/13 lows should not be breached. Any move above 31.97 in the Qs should trigger acceleration toward a high above the 11/4 high of 34.01.

The alternate view is that Friday's rally is wave ii of 5. If this is the case then we should know it fairly soon as wave iii of 5 should quickly take out Thursday's lows.

I am finding it easiest to follow these moves on the 15min and 60min charts, which gives me time to perform other tasks in between. Thursday's reversal developed as a head and shoulders bottom breakout around 2pm which completed as 5 waves up. By 1pm Thursday it was becoming clear that a rally was at hand and I began taking profits on short positions. If the markets do rally to the 50dema, I believe that it will be the last great short opportunity of the year, but it should be followed by one or two great long opportunities as well as large swings should be the norm until this primary wave down completes next year.

I usually don't have the luxury of following the intraday action, but I try to be in front of the screen when I think reversals could be at hand, and I use the intraday charts to determine pivots and entries whenever possible.

Throughout this year I have been developing my intraday trading methods. While there are any number that are profitable, I have been most interested in simple methods that allow the greatest flexibility from the screen. I have narrowed it down to two methods both of which consistently produce winning trades with few variables. My criteria for full time trading is that I should have enough capital to produce double my current income. That way, if I have a bad month I will not be under a lot of pressure to catch up. Once I have consistently produced income from intraday trading for at least 3 months, I will share specifics of what I am doing.

I wish you all profitable trading this week.

Thursday, November 13, 2008

Follow Up On Rally Post

The key to this rally making it to the 50dema is a move above Monday's highs of 31.97 for the Qs and 9159.58 for the Dow. Failure to follow-through above Monday's highs by this coming Monday or Tuesday accompanied by a 3 wave rally would indicate that wave 5 is already in progress and the triange completed at Monday's high. While this is possible, I think the fact that today was an outside reversal day limits that probability.

Rally To The 50dema

A rally to the 50dema is underway in the major indices, most likely in wave c of Minor wave 4 of a flat correction. The move up from this mornings lows was 5 waves on the intraday chart. Look to enter index long positions at a 38% to 50% retracement of today's range with a stop loss somewhere below today's low. The target is the 50dema. The 50dema is declining sharply, and therefore if the rally is also sharp we should see selling and a possible reversal at that moving average. This would be a perfect opportunity for a macd short position should it signal a sell after the 50dema is touched.

I exited all index short positions by the close yesterday and many of my remaining stock short positions around 1pm today. If you are still heavily short, it would be wise to lighten up tomorrow in my opinion as this rally could be intense.

What happens after this rally is over will clearly determine what happens in December, but another move back down to today's lows is certainly a possibility before a 6 to 8 week rally to follow. A breakout without retesting the lows will mean that the intermediate term wave (4) or (A) rally is underway.

Lack Of Downside Follow-Through

We have seen lower prices today, but on lower volume. Advancers and decliners and up/down volume are roughly even so far today. To me this has the feeling of a b wave, although it could be wave 5, it just doesn't feel right to me. This is entirely subjective. I have continued to scale out of shorts as targets were hit and I am 75% cash at the present.

The one thing that has been nagging me all along is the time factor between Minor waves 4 and 2. While they don't have to be the same, wave 4 has seemed too short and far away from the upper channel line. I am beginning to suspect that the 10/24 lows completed Minor wave 3, and we are only now in the middle of Minor wave 4. If this is the case, we now have the possibility that we are still in a triangle or a flat that will work over toward the upper channel line. We could see a sharp thrust back up to 9800 to 10000 in the Dow in wave c of 4 before wave 5 gets under way.

While typing this post the markets have reversed and are moving higher. Volume is picking up. Perhaps wave c is underway. This is why I have urged caution in dealing with the current market pattern and timing as there are too many potential outcomes to be overly committed either way. If we get a substantial rally, it could be the last opportunity of the year for a good short trade.

Wednesday, November 12, 2008

Wave d Follow-Up

Intel's negative report afterhours increases the likelyhood that the 11/24 lows will be taken out tomorrow. However, we should not become complacent and expect that an immediate downside follow-through will ensue. There are clearly a number of ways that we can get to the bottom of wave 5, but take care not to be overly aggressive as it is possible that merely a retest of the 10/10 and 10/24 lows is all that will happen.

I've spent a lot of time discussing the potential elliott wave patterns because it is a subject that interests me, and it can help keep us on the right side of the trend, but I want to make it clear that I am not trading the pattern specifically. The fact is that there has been no clear change in the weekly trend since the beginning of September. All I have been doing is selling the rallies and buying the lows while this consolidation plays out. If we get a test of the 10/10 low in the Dow, I would first expect a rally simply because the first test of lows and highs typically fails and also because so many people believe we have seen the worst there will be some buying at those lows. When they fail on the second test is the most likely point of acceleration. For now, I am still waiting for a rally to add to short positions. I will not short the breakdown tomorrow.

Tomorrow before the open would also be a likely opportunity for a surprise positive news event, possibly intended to avert the breakdown. Whether it is working or not, we have seen some sort of government news every time we approach the 10/10 low.

On Comments:

I believe Laundry indicated that he would be surprised if markets held past the end of the week. I think the point here is the big picture not whether he is right about specific timing. As long as we have a good handle on the big picture, we can use other entry and exit techniques for profitable trades.

Wave d May Be Nearing Completion

The recent targets mentioned were for wave d, not wave 5. The wave 5 targets will be reassessed when we get to the end of the triangle, if that is what we are dealing with. Wave d may be ending as of Wednesday afternoon, if so then wave e could finish anytime between Thursday and Monday. As I said before, look for some positive news announcement that is concurrent with a market rally to signal wave e. We can enter or add to short index short positions near the end of wave e with the wave c high of 11/4 as a stop-loss. To be valid, wave d must not come under the 10/24 lows. If it does then either we are in wave b of the triangle or a flat, or wave iii of wave 5. Today's light volume is not congruent with wave iii of 5, however.

I took partial profits on index shorts this afternoon, and will look to add back on the wave e rally. I am maintaining partial short positions in case I am wrong and we are already in wave 5.

Monday, November 10, 2008

Triangle Still In Progress

There's not much to add today. The triangle pattern continues to work its way toward wave e, which may come as early as Wednesday or as late as the first of next week. In Elliott Wave International's Short Term Update today Steve Hochberg reminded readers that wave e is often accompanied by some contrary news, in this case bullish, that would seem to indicate the end of the downtrend, when in fact the opposite would be true since wave 5 would be imminent at that point. So, don't get faked out if we get a sharp rally on some unexpected positive news in the next few days.

I must say that this triangle is doing its job by wearing people down. I have even got bored the last few days with the lackluster action. I have only added one new position in the last week and have one open order for another that I am not sure will get filled.

This morning's post on Terry Laundry's T Theory Observations was one of the best I've read in a while. As far as I can tell Mr. Laundry has come up with a unique market analysis methodology that is quite reliable. He uses a volume oscillator to measure accumulation and distribution and has observed that when measured correctly the time of accumulation tends to match the time of distribution thereby creating a T that can project market turns. His current analysis fits perfectly with my recent observations that the triangle period may last until the end of this week or early next week before the downtrend resumes into a late November early December low.

The current wave projects to 29.03 to 28.36 in the Qs and 8633.77 to 8142.80 for the Dow.

Unless something unusual happens I will probably not post again until we approach the end of wave e. Be patient.

Saturday, November 8, 2008

Market Sentiment

One of the best sites that I have found for free market sentiment data is Market Harmonics. The Options Buyers Sentiment Gauge is currently in neutral, but the Eliades New Trin and Nasdaq Composite New Trin are indicating an overbought condition even after the decline of the last two days. These indicators are consistent with an upward correction as opposed to a new trend thrust. If the markets had broken out above the 10/14 highs and the 50dema, then the interpretation might be different.

While the current decline could be wave d of the developing triangle, it could also be wave b, so we could continue to see sideways movement for another week, unless the 11/4 high is exceeded.

The INO TV Saturday seminar series had an interesting seminar from Charles LeBeau today. Check out the link above. As he explained his interpretion of the ADX, it is also clear that we are in a correction. I use the 10 period ADX. Currently, I see that the ADX is declining indicating a correction, and DI- > DI+ indicating a downtrend. LeBeau recommends buying pullbacks in an uptrend when the ADX is declining. In the current case, we have the opposite, so we should be selling rallies. Very interesting to see another method that confirms the state of the market.


The only rules that I am aware of for extended waves is that they usually occur in wave 3 or wave 5 and usually only one wave is extended. For stocks, wave 3 is generally the extended wave, but for commodities, it is generally wave 5. Extended 5th waves often retrace to the point of origin.

I appreciate the compliment. It takes a lot more work to produce intelligible commentary and ideas than I could have imagined before starting this blog. I have a great deal of respect for anyone who publishes substantive work on daily basis.

Thursday, November 6, 2008

Impulsive Decline

The decline from tuesday's high appears to impulsive and nearly over, so a sizeable countertrend bounce may occur tomorrow and last into Monday. As was indicated in the comments this may be wave i of 5 toward new lows, but it may also be wave d of our triangle that is grinding ever so slowly toward that declining upper channel line. I don't think there is anyway to be certain at this point. We also have to be on guard for an unexpected move above tuesday's high which would negate both viewpoints. Unless we get a surprisingly good jobs report in the morning, that doesn't appear likely though.

As Dave pointed out in his comment, we could also have a failed or truncated 5th wave scenario due to the extreme move of wave 3 down, although I think that the amount of the decline since tuesday would make that unlikely. As far as the DUG ETF, I have been extremely dissatisfied with its performance relative to Oil. Part of the problem is that it is tied also to Natural Gas which has been in a countertrend rally while Oil has been going down and from what I can see it tends to respond to Nat Gas more strongly. I have been equally dissatisfied with the SKF as its movements seem to be too exaggerated relative to the underlying. I think the best strategy with the leveraged ETFs is to take profits at set % gains or ATR multiples and accept that we will not be able to capture all of the swing.

As far as the cycle low expectations are concerned the triangle pattern fits the best as the thrust from the triangle typically lasts about one third of the length of the triangle, and if the triangle completes sometime next week, it will put the completion of wave 5 close to the projected cycle low.

Wednesday, November 5, 2008

Cautiously Short

I exited my remaining index long positions this morning and entered some partial index short positions. While the upward correction could be over, I think this pattern needs more time to work itself over to the declining upper channel line so that the time of wave 4 is closer to that of wave 2. That doesn't have to be the case, but it would align this wave count with my cycle analysis.

So far during the last 3 1/2 weeks I have only been stopped out of one short stock position. I credit this accomplishment to using Marketclub's 3 week rule and some discretion. Using long index positions to hedge my short stock positions, I experienced only a modest drawdown while waiting for the resumption of the downtrend. When the opportunity presented itself along the way I took partial profits on short positions. I will be fully short the indexes once we get a clear signal that the downtrend is underway, which may take a few more days.

I don't expect this 5th wave thrust to last very long. There are too many cyclical and seasonal pressures building that should lead to another sharp rally in December and possibly into January. Unless I have a large cushion, I will probably exit any remaining short positions at the conclusion of this next leg down and look to re-enter after the new year as the year-end rally should be the largest since March 08.

One thing to keep in mind about 5th waves. The end usually comes unexpectedly. If you are not already short, or not comfortable with discretionary exits from short term positions, you should probably keep it light on the short side on this 5th wave as most trend following rules will have you give back all of your profits or leave you with a loss before you know what's happened in this market condition.

Post Election Letdown

By letdown I am not referring to the election of Barrack Obama, but rather just the letdown that occurs after any kind of emotional life event. Examples include marriages, births, deaths, sporting events, retirement, etc. The market has rallied into this election event on declining below-average volume, which does not support a continuing rally. Just as the Dow made a new closing low on 10/27 without penetrating the 10/10 intraday low, it could be that we are seeing the end of this rally with a closing high above the 10/13 closing high that does not penetrate the 10/14 intraday high. The only thing missing is waning momentum. The 50dema looms ahead and is an attractive target, but there is no law that says it has to get there.

So far only one of the intermediate term systems in the System Tracker is long this market, the others remain in neutral or short positions. The monthly-weekly-daily system exited yesterday on the open and has a year-to-date gain of 56.3%, not bad with only 4 trades. The 3 week system remains short and is not far behind with an open gain of 53.75%.

One of my ongoing goals is to become more effective and efficient as a trader and in other areas of life. I know that I work harder to achieve my goals than I have to. While my personal performance has exceeded the above, I have worked much harder for it than 4 trades. The question is, where is the point of diminishing returns? How much does short term and intraday trading add to the equation for the hours required versus the risk of levering up an intermediate term system? I don't know the answer to that question, yet. For now, I enjoy watching the markets and analyzing the possible and probable outcomes too much to not be involved on a daily basis. For those who aren't into the markets like some of us are, the point is that it doesn't take that much work. For sure, this years results from the System Tracker will be skewed to the high side more than most years, but for those who are content with consistent average to above-average returns, 4 to 8 trades a year is really all it takes.

Tuesday, November 4, 2008

Election Day Thrust To 50dema

After closing at a new low on October 27, the Dow rallied for about 12 hours before forming a 3 day triangle pattern or ending diaganal pattern. In either case it indicates that the end of this rally is near as we approach the October 14 highs and the 50dema. It could be over as soon as mid-day tomorrow. There is still the possibility that we will only see a pullback followed by another rally before the downtrend returns.

The narrow range day usually implies range expansion to follow which is what we are seeing this morning.

Monday, November 3, 2008

Interesting Day

While the markets appeared to do little today, the day left us with an interesting development. All of the major indexes traded in the narrowest range of the last 7 days while simultaneously registering a 5 period RSI greater than 90. In addition, most of them are pressing against resistance of one kind or another, e.g. 20dema, 1.0SD bollinger band, etc. The Qs, meanwhile, have also closed the last 3 days at a trendline drawn parallel and equidistant from the uptrend channel from the 2002 low to the 2007 high, i.e. the lower fork of an Andrew's pitchfork.

The probability has increased that we will see a near term pullback in this unfolding upward correction. The pattern that has developed would seem to negate an immediate return to the downtrend, so we may still see one more rally afterwards to complete the correction before the downtrend resumes.

Saturday, November 1, 2008

Did You Outperform T. Boone Pickens?

I can only say that I was shocked to see T. Boone Pickens on CNBC earlier this week discussing the performance of his commodity based hedge fund BP Capital. Mr. Pickens seemed to be less than his usual dynamic self when stating that year-to-date his fund is down over 60% and is now currently in cash with expectations that half of the invested capital will be pulled out by investor redemptions. I am not trying to pick on Mr. Pickens (no pun intended). I am only pointing out that even the wealthiest most successful traders lose money and sometimes a lot of it. So when you get discouraged about your performance, remember that.

I don't know what kind of strategies are used at BP Capital to trade the commodities markets, but in listening to Mr. Pickens on CNBC several times this year, I suspect that much of the trading is based on his subjective opinion about the direction of oil prices. Earlier this year he stated that he was short oil around $100, and then went long after it went above $110. I can only guess that he failed to exit when prices returned back below $100.

What if there was a different, completely objective, approach. Check out this free video from Marketclub that shows how you could have made $46,000 with less than $10,000 using Marketclub's trade triangle technology - Crude Video.