Friday, May 29, 2009

All Clear?

I don't think so. To be sure, the pattern in the Qs is very bullish, but overall it looks like a b wave of a flat correction. That said, wave b of this flat could extend as high as 36.22 before reversing to retest the 5/13 low in mid June. I do expect that Monday will be an up day, and perhaps next week, and while I will most probably be stopped out of my 1/4 index short positions, I am happy to wait for a better entry to go long. On the above chart of the Qs we see a negative divergence in both the 5 period and 14 period RSIs and declining volume. In particular, volume has declined during this 4 day rally. It is possible that things could change next week, it is just not likely, but we will have to wait and let the market tell us what it wants to do.
A continuing choppy rally is a warning sign that we may get a sudden downdraft similar to Feb/Mar 2007. If this is a triangle, a running triangle, then we still have waves c, d, and e to go, which could take a couple of weeks.
Another reason that this rally appears suspect is the the transports are lagging badly and look to be in a bearish flat correction.
Gold has moved up into the "zone" of the high bar on the daily chart, meaning that it has closed within the range of the high bar. Perhaps it will zoom through to higher highs, but I am taking profits Monday in the DGP.
Oil, on the other hand, looks like it still has room to run, so I am standing pat there.
Today I was stopped out of HANS for a net loss of 5.6%. I was disappointed as I really thought it could be a big winner. On the other hand, SOHU took over for HANS and zoomed ahead today. I am now up 20% in SOHU. Two weeks ago I was sure it would be the other way around. This is why we let price direct our actions and not our opinions. All we can do is make reasonable choices as to which markets and stocks to trade, and let price do the rest.
I grade my performance in May as a B. Overall my account was up by the average monthly gain over the last 6 months, but I did make a couple of mistakes. I also put too much weight, in retrospect, on what I perceived as the potential for a big short covering rally, which has yet to materialize.
My mistakes were one of commission, I accidentally took too large a position in one stock due to a calculation error and doubled my expected loss when I was stopped out, and two of ommission, I failed to take positions in GMCR and QSII. I had followed both of these for months. In January I made a note that my projected target in GMCR was 82.80. It closed at 83.44 today. The entry would have been 43. Oh well, there are always new opportunities.
Now GMCR looks like it is wedging up into a top after announcing today a 3 for 2 split for June. 3 for 2 splits are typically not very bullish. I bought a put contract.
Tomorrow, I will post a review of a short trade I took in MCO.

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