Technical Analysis: DOW Industrial, S&P 500, DOW Composite , Nasdaq Composite and Russell 2000 Index

Thought it's timely to take a look at the longer term market trend.

DOW Monthly



WHAT I SEE

1) Head and Shoulder (marked A, B, C) - July has closed below neckline and candle has closed lower than the close of June's. Consolation for the bull is that volume was increasing from A to B, and decreasing on the decline from B to C. What this means is that we don't have a confirmation for a head and shoulder yet unless price continues to close under neckline with surging volume. Chances of DOW resuming its healthy uptrend will definitely improve with the failing of the head and shoulder pattern.

2) Three Bearish Hidden Divergences (see here for brief description of hidden divergences) for period Mar 03- July 08, Oct 04 - Jul 08 and Jul 06 - Jul 08. This is indicative of the strength of the uptrend that preceded the downturn in Oct 07, and suggests to me that it will resume after the current pullback

3) DOW has retraced to Fib 38.2% and prospect of it going back up looks good. Either that, or it continues to retrace to Fib 61.8% or slightly beyond that (this should happen if we start seeing a rise in volume as DOW goes down) , which will complete the head and shoulder pattern.

4) Jul's candle is a hammer. It should at least hold back the downward move, or give support to a rally for the rest of the year. I would have been more confident of that happening though, if the candle before it wasn't a belt-hold, and if the belthold hadn't confirm a prior resistance (feb 07) of 12,650.

5) Both 50 and 200 MAs are rising, and DOW is still way above 200 MA. That tells me that we are still very far away from seeing a bottom/recession (granted that the fact that it's imminent is no cause for celebration, but hey, everyone should LIVE TODAY).

Yes, I'm a confirmed bear. Unless the financial sector cleans up its mess, I'm going to stay a bear.
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SPX Monthly

Don't see a lot of difference between the DOW and SPX, except that SPX has NOT actually closed below the neckline of its head and shoulder pattern.



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COMP Monthly



WHAT I SEE

1) Japanese Three Mountain Top (aka Triple Top) - with volume decreasing on the current decline in price, it seems there's still a glimpse of hope that price might just find support at 3930 to 2965 and not drop further....

2) Failed Bullish Flag - instead of breaking up, I'm seeing increasingly lower highs...and a shooting star in May is not exactly a very comforting sight...

3) Bears came in at full force in July, taking in one session almost all the gains it took the bulls 3 months to achieve

4) Volume seems to be increasing with the decline in June and July. Not really a good sign, but not too ominous a phenomenon yet as volume is not abnormally high.

5) Again, a belt hold is a concern, especially when the last time it appeared was in Apr 02 (and the Apr 02 belthold actually confirmed a resistance of 2 beltholds before it). In April 2002, COMP plunged from 3045 to a low of 2298 in Oct, its biggest decline ever. Belt holds are significant only if they appear at high price level. And COMP has just seen its historic high last Jul. Situation looks precarious to me. At least that's what my chart tells me.

6) BUT, all said, I'm not going to ignore the hammer in Jul, not when it's confirming a support at 3965
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RUT Monthly



WHAT I SEE

1) Head and Shoulder pattern - good news is, price is still above neckline (in green)

2) Bullish Wedge - stabilizing commodity prices and interest rates would really help keep RUT afloat and give it the momentum it needs to break out of its current boxed range.

3) Support formed by hammer in Mar 08 is still holding prices up.

4) Moving Averages indicate a continuous upward trend and prices have closed above the faster moving average again afer closing below it in Jun.

In a nutshell, RUT looks good to me for now. Quite a far cry from DOW, SPX and COMP in fact.
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COMPQ (Nasdaq Comp) Monthly



Chart looks similar to RUT's. Price has support at neckline of head and shoulder pattern and is above a rising 50 MA.

Worth mentioning here is Aug has traditionally been the 3rd worst month for Nasdaq. What I'm seeing on my chart tells me that maybe for this year, Aug is not going to be so bad for Nasdaq.

Hex II

I think the universe is making a serious attempt to tell me something.

It's shutting down all my communications channels.

Even my mobile phone has crashed. I suspected something was not right when it was so quiet today. I stopped receiving anything else after getting one from M and one from my interior designer. That was before noon. I receive on average of 20 to 30 messages a day, so not having any messages come in from noon to 11pm was just not normal.

Finally, D tested my phone by sending me a message, which I didn't receive of course.

He scrolled to my inbox and was petrified to find 900 stored messages. No wonder it refused to accept more.

What D did next was an ultimate nightmare for me. Using bluetooth, he synchronized my phone with my pc so that I could choose and delete the messages I could bear deleting.

My computer froze. There was nothing else I could do. I had to delete my entire inbox.

So I thought.

But D suggested I read the manual to see if there was an easier option for me to delete my messages selectively, and also to call my service provider to find out if there was a glitch in my SIM or storage card etc.

Really bad suggestions coz those were the 2 things I really hate doing - reading a manual, and making a phone call, especially the latter (I hate calling so much that I would place my lunch order via Macdonald's online delivery service before 11am, coz after 11am, I would actually have to speak to someone).

I bit the bullet and hit the delete button.

All 900 messages obliterated in under a minute.

I wonder if it's meant to be...that there were things that I had to unload in my life that I hadn't while I was given a choice, and now I'm paying the price for hoarding.

Looks like a deep soul-searching exercise is in order.

What else is there that I have to give up that I haven't???

I'm going to have to start putting all the cards that D and Seabloke ever gave me into a safe deposit box. The way the universe is conspiring against me, I fear that Keisha might just find them and eat them!

Yes, Keisha will eat anything organic.

After Action Review for Week of 8/4

I said in my weekly analysis for Aug 4 - Aug 8 that I was bullish for the week.

But as I was going through my ER2 trades for the week, I can't help but noticed that I had only 2 long trades and the rest were shorts.

On a really bullish day like yesterday, all my entries were shorts.

I was not alone. Out of D's 3 trades, he went long only on one of them, and it was the least profitable of the 3.

I can't say with certainty that D was influenced by me, but I am not going to deny that it would have been extremely difficult for him to ignore my skepticism towards market's extreme optimism yesterday in the face of all the adversities confronting it.

In fact, I felt so bearish about the market just minutes into its open (despite what I wrote hours before in my pre-market analysis), I put in a short entry just a tick below the low of the candle just seconds before market opened. In 3 minutes, I exited near the low of the day with a 1.9 point gain.

Anyone who traded the ER2 last night would recall that after its first move down, it quickly reversed and went up steeply for 45 minutes, and when it paused for a break, it was already 18 points above its open.

D went in for the ride during the first 15 minutes of that upward move, while I sat and did nothing but just watched. At 1000am EST, I drew my Fib and then continued to sit back and watch. D asked how much higher it could go. I said that it looked like it was aiming for Fib 161.8. At that level, ER2 would be at $731. But still, I found myself unable, and unbelievably unwilling to "go with the trend".

I was looking at Dow gained more than 150 points 30 minutes into the session and all the major indices going up equally fast, and yet I couldn't hit the "Ask" button. I don't know why, I just couldn't.

I guess I was waiting for a "decent" retracement (like to 38.2). And if after the pullback - if it happened - it were to move up again, I MIGHT just have given going long a consideration.

But what happened after that was that ER2 started trading in an extremely narrow range and 2 strong bearish reversal patterns (see chart below) failed to bring it down. By then, I was looking at a bullish wedge, then the wedge became a flag, and yet ER2 refused to trade out of its narrow box-range.



It was difficult to be bullish when all the bullish patterns were failing. And it was hard to ignore the bearish candlestick patterns that had formed earlier and the bearish divergence that followed.

So, technically, I was bearish. But I can't be totally bearish coz DOW and all the major indices were gaining more than 1%, and when the bullish flag was there the whole time.

I went in for 2 more trades after the one before market opened - like the first, both were shorts. It was much easier for me to be bearish than bullish.

When what was right in front of me was confusing me, I zoomed out and focused on the major trend.

To me, the major trend was bearish. At a certain point, I was wondering what the folks who were still buying at 723 and above were thinking.

Anyway, I got my biggest gain (2.9 points) for the week shorting the most bullish day of the week.

I don't know what else to say except that when it comes to trading, I've always been most comfortable whenever I trusted my intuition rather than what the news and the indices were attempting to tell me.

D's ER2 Trades 8/8 (Part 2)

D's trades for Aug 8:



Total: +3.4 Points

Trading the E-Mini Futures

Just wanna share some examples of how others trade the e-minis.

Here are some of Trader Gav's paper trades on the Nasdaq e-mini.

Pre-Market Analysis 8/8

Market ended down yesterday:

Dow 11431.43 (-224.64) -1.93%
S&P 1266.06 (-23.13) -1.79%
Comp 2355.73 (-22.64) -0.95%
RUT 713.41 (-12.49) -1.72%

Among the causes for the tumble are:

1) A trouble-laden financial sector:

- Dow component AIG fell 18% to $23.84 after reporting a monumental loss in its credit default swaps portfolio and other investments. AIG was the steepest decliner among companies that made up the DOW list.

- Citigroup fell 6.2% after it was required by regulators to repurchase $7 billion in auction-rate securities and pay a fine of $100 mil for having sold the auction-rate securities. It was reported also that it faces the threat of being charged for destroying key documents.

- Tension in the credit market has made it difficult for companies to discharge and value mortgages, and bad debts are filling companies' balance sheets.

2)The number of newly laid off people claiming jobless benefits last week skyrocketed and hit its highest level in more than six years.

3)A weak retail sales figure renewed concerns about the health of the economy.

4)OIL REBOUNDED: light sweet crude rose $1.44 to close at $120.02 per barrel on the NYME

Before market nose-dived into its session low in the 2nd part of the trading session, stocks were seen rallying briefly following positive report on pending home sales figure. While consensus was -1%, the result was a surprising +5.3%.

However, somber news on 1) to 4) above quickly reversed sentiments, and the market headed south all the way to 15 minutes before market closed. I find this hardly surprising - in an atmosphere of uncertainty, it's easier, and definitely safer, to take the side of the bears.

But that's yesterday. And it's gone. I'm more interested in where we are heading today.

- This is the first day of the Olympics game and the Asian market has seen a down day.

- Other bad news for the day include Disney's closing of 3 Macdonalds' restaurants (both are DOW components, so, go figure...), Boeing and Airbus facing delays due to shortages in parts, Google reported its stake in AOL may be worth less than the $1 bil it paid for in 2006, and other bad news from the financial sector

- Crude oil is down $1.50 for now - and it might just stay down due to lower demand (summer travels ending, slow economy) and short contracts. If what the market is expecting is declining oil prices, I reckon oil will move market only if it were to go up.

DOW Daily Chart shows that rally might be coming to an end and DOW seems unlikely to reach 61.8% fib retracement level:



Things I see that reinforce my view that DOW's primary trend is DOWN are:

1) 2 bearish candlestick patterns - 1 on 24 Jul; the other, yesterday.
2) Bearish divergence for the period Aug 6 to Aug 7
3) Bear wedge
4) Lower than average volume after the first 3 days of the rally

Having said the above, I notice that the bearish engulfing pattern formed on 24 July has failed to bring DOW all the way down. What it tells me is that market looks like it wants to go up for a while more. Positive economic data (refer to details on Productivity and Cost Data below) today might just give it a little more boost and it's possible we could see DOW ending the week in positive territory.

S&P daily chart looks almost identical to DOW's, without the bearish divergence.
_______________________________________________________________________________

On today's economic calendar are:

1) 830am EST: Productivity and Cost data for Q2 - Consensus 2.5%

Productivity and cost data measures changes in the efficiency of workers who produce goods and services. The following extracted from "The Secrets of Economic Indicators" by Bernard Baumohl explains why the data is significant:

Productivity is by far the most important determinant in the long-term health and prosperity of an economy.

Here’s why: Labor costs account for some 70% of all business expenses, so if companies are not using workers efficiently, it’s an enormous waste of resources.

With a productive workforce, however, an economy can produce enough supplies to meet the demands of consumers and businesses without causing shortages and higher prices.

In addition, if workers produce more each hour, companies can increase sales and generate greater revenues. That will boost profits, which, in turn, can be used to distribute bigger dividends to shareholders, stimulate more business investment spending,or lead to greater pay for workers. Indeed, you might even be able do all three at the same time.

On the other hand, poor productivity growth is a recipe for economic stagnation. It invites inflation, higher unemployment, weaker growth, and little or no gains in real income.

2)1000am: EST Wholesale Inventories for June - Consensus 0.6%; Prev 0.6%

Hex

I'm cursed for the day. Murphy seems all out to get me, and everything that could go wrong, went wrong.

For starters, all my systems crashed on me, including Firefox and Explorer! Then when D finally got my systems up and running again, Windows crashed!

Everyone who has seen me these 2 weeks is either sick or has passed my virus to HER kids.

Seabloke saw me once and my nieces came down with a nasty flu.

Went out for lunch a few days ago with a friend who was so healthy he hadn't seen a doctor for years, and now is experiencing something that's symptomatic of the onset of a cold/flu. And I won't know what it is until he's willing to see a doctor...

D is the latest victim. He was in his sweater the whole night and that was certainly not a good sign. He is now officially sick. Lucky for him, he's scheduled to take his leave tomorrow.

I've only stepped out of my house twice in 2 weeks. Imagine if I've gone out everyday like any normal person...

But I'm not so good myself. I noticed that the sun has a certain effect on me. It drains me. I've been sleeping like a pig for days and am still very sleepy now. I think I'm mutating.

I'm turning into a vampire. Which I don't mind, really.

But I vow never to suck blood.

Well, maybe just D's.

Hur hur hur......

D's ER2 Trades 8/7

D's been netting consistent profits since he started trading the ER2.

What's impressive is that his losses are very consistent too as he's merciless when it comes to cutting losses. He knows that as long as he preserves his capital, he has plenty of opportunities to go back into the market within the day to get his money back.

And so far, he's NOT had a net loss day.

He's definitely getting a kick out of doing this:



:-D

D - My Joy, My Sorrow, My Nemesis

It took me 4 months to finally accept that we are history, and for the past month, I've been living the life I've always wanted to live - one that's free of emotional baggage.

It no longer bothers me that I am not one the things that D cares about in his life, and an occasional "don't forget to take your lunch" and "time for lunch!" sms reminders have merely been pleasant surprises.

But for reasons I'm still struggling to identify - perhaps I really got out from the wrong side of my bed today - I was extremely frustrated that I've not heard from D since he left home, and that when he finally called, there was not an ounce of guilt on his part that he had me worried sick.

It was only after I cooled down that I realized WHAT AN ASS I've been.

Now that we are only friends, what right do I have to be mad with him over anything?

Why did I even worry about him in the first place?

All my friends know me to be one of the least imposing person they know. To my friends and my family, I'm always accommodating and forgiving.

But I'm an entirely different animal whenever I give my heart away. When in love, I'm in a constant state of anxiety. I feel vulnerable and I lose my head.

So I'm done with the whole romance, forever love mumbo jumbo.

I was MUCH HAPPIER out of love.

Not only did I manage to find myself, during the period that marked the first time since I was 17 that I was love-free, I was also finally able to stay happy for 30 days continuously.

So why did I blow my top today?

Coz all the platforms that I've been using to get my charts are not working! SIMULTANEOUSLY!!!

Even falling in love with something inanimate like trading and charts can cause such an upheaval in my life when things are not working!

I will have to STOP FEELING!!!!!!!

If a genie will grant me just one wish, I'll wish to be a MACHINE! A very very smart one!!!

Pre-Market Analysis 8/7

After Tuesday's rally in a bearish market, I have to say, I did not expect the market to finish in positive region yesterday:

Dow 11656.07 +0.35%
S&P 1289.19 +0.34%
Comp 2378.37 +1.21%
RUT 725.90 +0.67%

Following yesterday's restrained profit taking, I'm thinking that there should be more today, plus short covering. Hence, I'm bullish, albeit only mildly, for today.

Dow and S&P are nearing their resistance level and are likely to trade in a very small range today. RUT daily chart shows 2 days that have closed above its resistance, breaking out of what looks like a bullish wedge to me. So, I'm bullish on RUT today.

Oil and the other commodities remain down.

Do I want to talk about finance and housing?

Nah.

Pre-Market Analysis 8/6

Market rallied yesterday:

DOW rose 331.62, or 2.94%, to 11,615.77
S&P rose 35.87, or 2.87%, to 1,284.88,
COMP rose 64.27, or 2.81%, to 2,349.83.
RUT rose 16.90, or 2.40%, at 721.04.

Factors causing the rally include:
-Data showing that services sector activity fell less than expected for July.
-Oil went down to $118 before settling at $119.17.
-Interest rate hike aimed to tame inflation is not imminent

In a bullish trend, one would expect to see a carry over of the bullishness of yesterday - after all, all the major indices went up by more than 2% on the same day.

However, in the current bearish and choppy market (we've not forgotten that the housing and banking sectors are still facing problems so entrenched that policies after policies to alleviate them have so far not stopped houses from being foreclosed and banks from being shut down), it's not surprising if profit taking begins as early as today.

Charts seem to agree with me.

DOW Daily


- Bearish divergence for period spanning Jul 30 and Aug 5.

- We could be trading within yesterday's range and not go any higher than yesterday's close.

S&P Daily


- Bearish divergence for period spanning Jul 30 and Aug 5.

- We could be trading within yesterday's range and not go any higher than yesterday's close.

RUT Daily


- Bullish wedge indicating that price is likely to break up sometime this week.

- But bearish Hidden Divergence for period spanning Jun 5 and Aug 5 suggests that for today, we are not likely to see price going beyond yesterday's high.

ER2 (Sept Settlement) Daily


- Bearish divergence for period Jul 30 and Aug 5 suggests that for today, price is not likely to go higher than yesterday's close.

- Bullish wedge: price could break out of the current trading range within this week or the next and we might see a brief rally then

Reasons

I have a fundamental belief: there's a REASON or explanation for EVERYTHING and EVERY PHENOMENON.

When a person acts in a certain manner, there's an underlying reason and motive that drives him/her to carry out that specific act.

Even those with a psychiatric condition have reasons for doing everything that they do: they are obeying the instructions of an inner voice.

Serial killers kill for thrill; the Joker, Batman's greatest nemesis, commits hideous crimes for many reasons, one of which is to have lots of fun; politicians have agendas; the office jerk wants to get to the top of the corporate ladder faster than anyone else; and so on and so forth.

When a market moves in a certain way, there are reasons, causes and factors behind its moves. When it surprises us, it's because there are developments that we are not aware of, which we might or might never find out in time to come.

It takes a lot of experience and diligence to get a good grasp of the factors that move a normal market and those that move the crazy one.

Even crazy markets can offer a lot of insights if you are patient enough to just sit and watch closely what they do at each and every trading session, then find out as much as you can about the events that are unfolding during, before and after that period.

Given that my thoughts are always in a jumble, I constantly look for ways to organize them and the way I do it is to SIMPLIFY.

I ditch everything that I can't fathom.

My experience with deciphering codes and complex concepts brings me to the conclusion that anything that seems complicated at first glance can eventually be simplified for ready digestion if it's something that actually makes sense.

The way that a concept, an idea or an information is presented may make it look complicated, and we might have to do some deciphering to get to the essence of the topic in question, if it indeed has any value to begin with.

On the other hand, when something is hopelessly convoluted, it makes me question its validity, authenticity and sensibility, and I will throw it out in a heartbeat.

With the market, and I'm referring specifically to intraday movements, it's not difficult to figure out why it's moving or not moving in your favor. For most of us, the answers will present themselves if we have done our homework before we enter the market.

But what truly matters is not whether you find out the reasons and answers immediately or if you'll ever find out at all. What matters is that you ACCEPT that there's a reason, and to stay in the game, you'll have to either go with the flow, or stand by the side until you're confident enough to hop on, without dwelling on the should haves, would haves and could haves.

The worst you can do to yourself is to simply dismiss the market as something that's totally irrational and erratic, and since there's no way to figure it out, you'll just TAKE A BET and PRAY for the best.

There are occasions where an apparently bullish market retraces in the absence of negative news, or any news for that matter. When that happens, and I have volumes to look at, and when D asks what's happening, I'll tell him it's profit taking. When trading a vehicle like ER2, I'm ok with taking the ride along with the profit takers. I'll stop when volume spikes all of a sudden, coz that tells me that too many people are along for the ride, and many are clueless that "bearish" is NOT THE trend.

By the same token, in what's supposedly a bearish market, prices can move up to unexpectedly high levels in low to moderate volume. When that happens, I wait for a surge in volume, when you know the smart money have almost sold all they want to be rid of to the clueless folks. This sounds really cruel, but that's the reality of the trading arena - you then wait for the latter to realize that no one else are buying and they start disposing of what they have in a state of panic.

All said, as far as trading is concerned, I know for a fact I'll never know all the reasons that move the market on a certain day or over a certain period. What I don't want to be is clueless.

There's a saying that a little knowledge can kill.

I can't agree with that more.

But simplicity saves the day - and having too many answers and wanting to know all the reasons can easily cloud a trader's judgment and divert his attention from his goals.

At the end of the day, if what you have at your disposal is giving you a 70% - 90% probability of getting 'it', why would you want to expend your energy on chasing after the mysterious factors steering the market away from the direction you've predicted?

And who's the bad influence who convinced me to accept that probability is the order of the day?

D.

Cool D.

Yes, I'm a broken record.

:-D

D's ER2 Trades 8/5

D was at it again! His guerrilla operations...

He simply couldn't resist it...

Well, but it apparently paid off.

%#^#*##***$!!!!!

Pre-Market Analysis 8/5

This was how market fare yesterday (Aug 4):

Dow fell 42.17, or 0.37% , to 11,284.15.

The broader market suffered a steeper decline:

-S&P 500 fell 11.30, or 0.90% , to 1,249.01
-COMP fell 25.40, or 1.10% , to 2,285.56
-RUT fell 12.02, or 1.68% , to 704.14
-S&P financial index fell 1.3%
-DOW home construction index fell 1.7% .

Economic Data

-Consumer spending, adjusted for inflation, fell by 0.2% in June

-Personal income data showed that Americans received their smallest gain in incomes in a year.

-Factory orders rose 1.7%, beating expectation, and is the strongest monthly gain since December. But that didn't seem to move market yesterday as all were focused on the issue of inflation (reflected in consumer spending data).

Commodities

Crude oil dropped to $119 a barrel on the New York Mercantile Exchange yesterday for the first time in three months. The decline was reportedly due to tropical storm Edouard veering away from energy facilities in the Gulf of Mexico, and in part due to the anticipation that demand is likely to fall in an atmosphere where consumers are more inclined to save than spend.

Gold, generally an inflation hedge, took a beating as a result of oil's drastic decline. The December for gold dropped $9.60 to settle at $907.90 an ounce in New York.

Platinum futures tanked for a second session as a result of last week's disappointing U.S. auto sales.

Where Market is Heading Today

If history is anything to go by (refer to my previous entry to see a similar pattern in March this year), with the drop in commodities on a down day, we should see some sort of rally today.

Although August is traditionally the worst month for S &P and 2nd worst month for DOW since 1987, for reasons I have cited in my earlier posting , and, taking into account also all the above-mentioned, I am still of the view that for this week at least, we're going to see some upside... something that's similar to what happened in the 3rd week of Feb (in grey elliptical in chart below):



That said, where the market goes in today's session is going to depend a great deal on Fed's economic assessment statement later today, which will give investors a sense of what the Fed's bias is with regards to future rate moves.

What's expected is that Fed is unlikely to raise rates, keeping it at 2%, as price of commodities has eased somewhat for now.

Here's an advice I would heed: in a haphazard market like today's, any news CAN, and WILL, drastically move the market. So be prepared for whiplashes (if losing money gives you heart attacks, don't play for now), and sudden moves that you can't fathom within the trading day (but just might make sense to you the next day or in the days that follow).

On the economic calendar today are the following items:

10:00 EST ISM Services for July Consensus 48.7 Prev 48.2
14:15 EST FOMC Policy Statement

Back to the Future?

Was following news articles written by Michael Grynbaum from The New York Times, and, as I was going through his archive, something caught my eyes.

You see, as I was taking a glimpse at the subject headings on his archive list, I had, by sheer coincidence, on my other screen, DOW's daily chart, which I hadn't closed after doing my daily analysis.

I'm attaching both screens below. See if you can spot how the recent development in the market is mirroring that of Jan to March's and notice how the DOW has responded accordingly (the period in question has been highlighted in grey tetragon in grey) in both periods.

My question is: From this point on, does it look like DOW's going to repeat what it did post March (ie. resume its upward move) or write a brand new chapter by going down?

I would take into consideration the fact that unlike in March - where price actually retraced to Fib 61.8% when it was on its way down - this time, we have retraced to only Fib 38.2%.

Archive of Articles written by M. Grynbaum (Jan - Mar 08)










DOW daily

About "White Noise"

Came across this and can't help sharing it.

I like this guy.

Weekly Analysis & Pre-Market Analysis 8/4

Revisiting Last Week

We've had a fairly exciting week that ended on Aug 1, the first trading day of the month.

The finance sector, which has been the biggest mover of the market for a while now, ended with a modest gain. Hardly surprising given the kind of support they are continuing to be getting from the government (see my earlier posting regarding the topic in question).

Oil ride seemed bumpy for the week, right after a nice trend down from its peak.

Then there was a heap of economic data that confuses at best.

After all those roller coaster rides through the week, the week ended surprisingly flat - S&P rose 0.2%, and DOW went down by 0.4%.

So there you go, just another week in a trader's life.

Looking forward, the first thing I want to do is clear my head in the midst of all the noises , look for patterns, and get a sense of what to expect in the week to come.

Been following the news and nothing out of this world has caught my attention yet. The market is still in a jumble (that seems to have become a CONSTANT these days...).

So I'm going to turn to my charts now.

I'll like to start with my monthly chart for DOW, since I've not taken a look at it for a while now.

1) Monthly



Bullish Hidden Divergence (lower low in MACD not matched by lower low in DOW), which tells me that uptrend since at least Oct 2002, if not 1900, will resume after the current correction.

Doji tells me that bears are taking a break.

We've hit 50% Fib retracement level. Price could go anywhere from here. I'm mildly bullish at this point, and you can find my reasons for being bullish - at least for this week - as you read on.

2) Weekly



Bullish Divergence for week of July 21 and July 28

Volume shows that selling pressure is at least wanning - a temporary relief for the bulls after seeing price dropping accompanied by heavy volume since May .

I would be concerned though with what seems like an evening star and bearish engulfing patterns(in grey tetragons) that formed at the top of the trend and as price was coming down. Seems to me that there's a strong resistance at the level DOW reached in Oct 07. Rallies after that were constantly being impeded by strong bearish candlestick patterns as bulls attempted to push price back up to the high reached in Oct 07.

3) Daily



Bearish wedge. Suggest a high probability that price will tank at some point after DOW has inched up to a certain level (where exactly I don't know - at least not on daily chart).

The declining volume since mid july suggest that the rally is not supported by new players coming in but simply bears taking profit or short covering (hardly surprising since SOME PEOPLE WHO REALLY HAVE GOOD REASON TO GO SHORT CAN SHORT NO MORE BECAUSE THEIR HANDS ARE TIED).

Anyways, I'm going to be a broken record and reiterate that bears are not going to be of serious threat at least up til mid Aug.

4) OIL
Let's take a look at the daily chart for Brent Crude futures



Seems to me that oil is consolidating after the steep fall off its top.

The box-range trading pattern is consistent with the prevailing sentiment. It's just nonplus all over - on one hand, we have rising tension between Iran and Israel, which is bullish for oil; on the other, confusing economic data and the ailing housing and banking sector (the health of which underpins the growth of the country) are holding bulls back (In fact there's been reports of substantial shorting of oil contracts based on expectation that the gloomy economy is going to impact on demand.

5) I mentioned the following in my posting on Jul 31:

Price moving towards Fib 61.8 - countertrend and corrections typically end at Fib retracement level of 61.8%. So, unless DOW goes up beyond around 12,250 (the 61.8% Fib retracement level of the fall from May to July) and stay up there, I'm going to continue to see the current rally as just a mishmash of bears' profit taking and opportunists jumping in to ride on the current rally in the financial sector (which, as I mentioned, would last only for as long as the government is willing to continue to bail out irresponsible companies)

With the expiry in mid Aug of such initiatives to prop them up e.g SEC's temporary restriction on naked short selling on financial institutions, I'm expecting their happy ride to be over by then.


My Thoughts on What to Expect for this week

Based on my points 1) to 5) above, and in the absence of any surprise from OIL and on the political front, I'm bullish for the week of Aug 04, and mildly bullish for the month of Aug.

Economic Data for today
Not a whole lot for this week. For today, watch out for the following:
08:30 Personal Income for Jun Consensus -0.1% Previous 1.9%
08:30 Personal Spending for Jun Consensus 0.5% Previous 0.8%
10:00 Factory Orders for Jun Consensus 0.7% Previous 0.6%

Reprogramming the Mind to Take 7-Figure Profits

An article that caught my attention.

Story's about an index futures trader who aspires to bring his profits to the next level.

Inspirational. Got me springing into action.

Reviewed my goals and objectives, made some adjustments, and am gratified that I finally have a vision that I'm most happy to work towards.

Seabloke, I DO WRITE SHORT AND SWEET. Occasionally.

:-D

D III

D and I started our Saturday early. It was the last day we got to keep our old home. An appointment was scheduled with HDB at 9am for the place to be inspected and surrendered. It was hardly a joyous occasion, but I certainly didn't feel half as traumatized as I did during my last visit.

D's presence had been most comforting. We had a little time to kill before the appointment, so we had coffee at a food centre nearby.

The "yellow box" (smoker's zone) there was exceedingly commodious.

BUT, it was the only part of the eatery that was totally uncovered.

"That's discrimination against smokers." D's disgruntled.

"Clearly it is. Nicotine's bad..."

"Then it should be banned"

"But revenue from tax is good..."

This went on for a while and then we sidetracked and started another equally trifling topic.

It's a known fact that I haven't enough "small-talk" skills to save my life. I can't carry out small-talks with anyone else (Seabloke's the exception of course). The main reason I haven't called my granny in weeks is coz I fear I will bore her to death. That's basically the very reason for my not calling any of my friends too. Unless I have something intelligent or jaw-dropping to share, I seldom talk.

But for some strange reasons, I thoroughly enjoy silly conversations with D. And I can't care less about appearing silly or clumsy when I'm with him now.

I'm not sure if I should feel happy that our "friendship" seems to be blossoming...

But I'm always happy to have D.

And it doesn't really matter what form he comes in.

Round is best!!!

:-D

Pre-Market Analysis 8/1

In the spotlight yesterday was GDP - data for Q2 was better than Q1's but it was not as good as expected. Revised data for Q4 of last year showed the economy shrank at a 0.2% annual rate. Bad news from Labor Department too - the number of newly laid-offs was 448,000 last week (the most in five years), and more job cuts are expected in the months to come.

Personal consumption expenditures is up by 1.5 % from April to June. Not entirely impressive. Since consumer spending drives about 70 % of the U.S. economy, this is a significant data. As it is now, consumer confidence levels are at record lows.

AND, Former Fed Chairman Greenspan has spoken again and remarked that there will be a 50-50 % chance that a recession is imminent.

The result of all the above is here:

Dow dropped 205.67 points.
S&P 500 dropped by 16.88 points (1.31%)
COMP dropped by 4.17 points (0.18%)
RUT dropped by 4.34 points (0.60%)

On a slightly cheery note, export growth rose 9.2% after rising 5.1 % in Q1, thanks to a weaker USD. BUT, it is expected that inflation and energy prices will slow it down.

Oil
Oil dropped by $2.69 to settle at $124.08 a barrel after it's Wednesday high. The threat of a recession (think less flying, less driving, less SUVs, etc) was alleged to be the reason causing oil traders to dump their oil contracts. Large investment funds are also reportedly liquidating their oil positions over the past months, and are in fact shorting crude contracts. Overseas, demand for oil has dropped in China due to restrictions imposed on driving and the closing down of environmentally unfriendly factories.

There's sure a whole lot of mixed signals from everywhere - inflation, no inflation...recession, no recession....not enough jobs to go around, yet people are spending (thanks to tax rebates payout)...

So what's a daytrader to do with all these info?

Beats me.

Trading is an art. And D's the right-brainer here. Not moi.

During times like this, I like to go back to my charts.

Yes, I love charts. Wonder if I mentioned that before...

But I'm not showing any charts today.

Coz all the charts shown in my pre-market analysis yesterday are still telling me that market will continue to soar until DOW and S&P hit Fib 61% level. The current rally seen on the charts are actually forming patterns of bear flags and wedges. Signaling that downtrend is likely to resume after the rally that began in mid July is over. Possibly by mid Aug.

But unlike the DOW and S & P, RUT's daily chart is showing signs of it coming down perhaps as soon as today.

So, yes, I remain bearish on ER2. Especially when today's the first trading day of Aug. Traditionally, it has been bearish.

Been digging into the genesis of the housing and credit crunch issues and I found myself time traveling to Bretton Woods time! I've digressed again.

To cut a long story short, US always has a way of creating a new problem from a previous solution, but hey, they're still thriving today - look, DOW has been on an uptrend since the beginning of the century, hasn't it? And CEOs are continuing to take home income and bonus in the tens of millions. They will find a way.

As traders, we just need to ride with the trend, follow the smart money (ie. don't buy when they are selling it to you!), keep close tabs on everything the Fed and US congress are saying and doing. And don't we forget the former FED chairman and mad Cramer.

Keep an eye on the following economic data to be released later today:
8:30am EST Nonfarm Payrolls for July consensus -75K prev -62K
8:30am EST Unemployment Rate for July consensus 5.6% prev 5.5%

D's ER2 Trades 7/31

D's trades for today (yes, he's retired for the night). As you can see, he doesn't take more than 1 point in losses (D's ultra stressed when he losses money...).



D's profit for today (figure includes yesterday's profit) :

Pre-Market Analysis 7/31

DOW was up 186 points (1.63%) yesterday on:

1) Surge in price of oil (rising by $4.58 to close at $126.77), giving a boost to the 2 big players in DOW - Exon and Chev

2) Gains in the financial sector thanks to a string of policies to prop up financial stocks

3) Rosy ADP employment figures

S&P 500 went up by 21.06 points (1.67%), COMP went up by 10.10 (0.44%), RUT went up by 4.31 (0.6%), ER2 (Sep settlement) is down by 0.06%

So, what do I expect to see in the sessions to come?

First, on market internals: COMP and RUT are showing weakness relative to DOW. ER2 (which is what I'm trading now) is now in negative territory. Price of oil is apparently affecting the small caps. I'm expecting ER2 to trade down today.

Now, on the market in general:

Government's advance reading on Q2 gross domestic product is due to be out today at 830am EST. Consensus is 2.3% , Q1's fig was 1%. Thanks to tax rebates, figs for Q2 might just look like there's some growth in the economy.

In the long run, the surge in oil and other commodity prices will continue to put pressure on consumers. In the absence of any transformational remedy to the credit and housing problem, and stabilizing oil prices, it is difficult for investors to get optimistic about the economy.

The recent rally that we saw was due to a number of factors that are not hinged on a truly healthy economy. Here are some of my reasons for not being optimistic that a bullish reversal is anywhere in sight:

1) Financial sector
To recap, market rallied for the past few days mainly because of a soaring financial sector. I don't know about the others, I personally won't keep any financial stocks. With the expiry in mid Aug of such initiatives to prop them up e.g SEC's temporary restriction on naked short selling on financial institutions, I'm expecting their happy ride to be over by then.

2) Although ADP employment figures were much better than expected, I've only been seeing news of layoffs by the thousands from big names. Am I the only one that's been missing out something?

3) Homebuilders sector closed in negative territory, small caps companies not doing all that well (diverging negatively from DOW and S&P), US' MONUMENTAL Budget and Trade Deficit, etc etc

Going back to yesterday's late day rally - seems that part of it was due to institutional investors adjusting their holdings before market closed, typical of them to do that in times of volatility.

Now, let's look at some charts.

DOW Daily



What I see here:

Bear Wedge, declining volume since its low on Jul 15 - suggest that rally is probably due to bears taking profit rather new bulls coming in

Bearish negative divergence is still there - reinforcing my belief that this is simply a short-term rally in a bear trend

Price moving towards Fib 61.8 - countertrend and corrections typically end at Fib retracement level of 61.8%. So, unless DOW goes up beyond around 12,250 (the 61.8% Fib retracement level of the fall from May to July) and stay up there, I'm going to continue to see the current rally as just a mishmash of bears' profit taking and opportunists jumping in to ride on the current rally in the financial sector (which, as I mentioned, would last only for as long as the government is willing to continue to bail out irresponsible companies)

In a trend like today's, any news, good or bad, WILL MOVE the market. A volatile time indeed.

S &P chart mirrors the DOW chart so I shan't show it. There are no divergence between DOW and S &P.

Since I'm trading the ER2, I'm looking at RUT and ER2 charts too.

RUT Daily



What I see:

Bear flag, bearish divergence for Jul 29 - 30, bearish hidden divergence (suggesting downtrend that began in Jul 07 will continue).

Fib 61.8% retracement level from fall of early June to July hit - accompanied by 3 spinning tops, I'm thinking likelihood is that party's over for the bulls

ER2 (Sep Settlement)

What I see:



Nothing too different from what I see in my RUT chart.

When I add in the factor of RUT and ER2 showing relative weakness against DOW and S&P, I can't help but be bearish. Both towards RUT and the general market, especially with Nasdaq showing weakness against DOW too.

What this is telling me is that DOW is pretty lonely and will soon join the others.

But as I've mentioned above, the rally is still on, and we should see the general market (except maybe russell and nasdaq...) moving up today (From DOW daily chart, we can see that MACD lines are moving into positive territory). Don't know about tmrw though, since 1 Aug has traditionally being bearish.

D's ER2 Trades 7/30

D, as usual, got his more than 1-point gain - all in an hour's work! *&*&*$(&#!

D has clearly found his way. His success rate is 6 out of 7 on average.

Here's something worth mentioning about D: he hasn't a big risk appetite, and won't take a loss of more than 1 point.

Because of that, he accepts that he will have to go for smaller wins each time.

D makes it a point to get out of a trade after getting 4 ticks. And whenever he breaks that rule, he'll find the trade turning against him.

As shown in my earlier post, D looks at just one chart. He has his focus on how price moves, and enters near the top of the candle if he's going short, and near the bottom when he's going long.

D's system is extremely simple - he looks at support and resistance, and gets news update from me.

D's triggers for entering and exiting his trades are different each time (typical of right-brainers??) - but they would be one of or a combination of these: news, DOW's movement, ER2's movement.

So far, D's method has worked very well for him. He keeps his target at 1 to 2 points. And he usually achieves it before 1pm EST. This is very likely the reason that he's consistently been able to keep his profit - he knows when to stop, and that's when he's physically and mentally too drained to carry on. And that's around midnight.

D works full time in a highly aggressive environment, and hence getting enough sleep is important to him. That's why he doesn't trade the after-lunch session.

This is typical of what I see on his TWS whenever he calls it a day:



And these are his trades for today:



I have always known that there's really no right or wrong way to trade. The only thing that's certain as far as trading is concerned (besides the opening and closing price) is that there's no holy grail. That much I knew.

But knowing is different from appreciating. Today, I'm beginning to appreciate and respect the difference between the way that D and I trade.

For once, I'm not going to insist that I'm right and that D's clueless. Coz he's apparently come up with a system that works extremely well for him and he stuck to it despite my frequent teasing.

D's SO COOL!!!

:-D

Pre-market Analysis 7/30

The market rallied yesterday on:

1) Declining oil (questionable now, really, since I was lost yesterday as to who was leading who...)

2) A soaring financial sector

3) Better than expected consumer confidence data (which we know has little correlation with real consumer spending, but do daytraders really care? Any data that has bearing on immediate sentiments MATTERS)

4) Good earning reports from companies

5) The fact that it's Tues (??)

So, DOW gained 266.48 points. Nasdaq, S&P and Russell all closed in positive territory.

This is how my daily chart looks now:



As mentioned in my pre-market analysis for July 28, my take was that we were going to trade in a box-range til today.

So what's special about today?

Well, traditionally, the last 2 days of the trading month are good trading days. For the bulls at least.

I still see my bear flag.

I don't know what else to say about my chart.

Let's see if support holds today.

Unless price gets higher than the high of Jul 23's session, I'm not going to turn bullish this week or even next.

And even if I have reasons to be bullish, I will tread very carefully for each session coz any bad news intraday will send the market plunging. By the same token, on a very bearish day, a single piece of good news can send the market soaring for the day, depending on how desperate people are in looking for signs of a reversal.

All said, I'm bearish for now. Treasury Secretary Paulson is not letting the free market do its thing, and I'm anticipating repercussions over time. It could happen in the days or weeks to come, maybe months. In any case, if the current generation is not paying the price, the next generation or the one after, will. And thanks to globalization, we're all going to have to pay (in fact, with my investment account in USD, I am already officially paying... $#*(@$*%)...

But, as a daytrader, for today, I care more about what's going to happen from now to 4pm EST.

By the way, oil has found support at around $122 and holding steady for now.

ADP Employment data for July will be out at 815pm EST. Current consensus is -60K, revised from -79K.

D's Simplicity & Jule's Jumble

Can't help but just have to take a screenshot of the following which sent D and me rolling on the floor laughing when we noticed the striking contrast:



The above is just one of the screens I look at when I trade.

Elsewhere, I have my SPX, COMP, NDX and UTIL charts to look for divergence with DOW, and also of course my level II screen, and news on newsflash.

D stares at ONLY this on his 21-inch flat panel:



Sidesplitting.

Not to mention mind-bending.

Coz D has been netting between 1 to 2 points almost DAILY, and never bothers to trade after 12pm EST!

So, what does this tell me?

That should I ever find myself totally lost and confused, it might just pay to come back to earth.

But for now, my screens and I are inseparable.

D's COOL, isn't he?

:-)

Pre-market Analysis 7/29

Dow -2.11%
Nasdaq 100 -2.4%.
Russell 2000 -2.0%.
S&P 500 -1.86

The above are just 4 of the indices that closed in the negative territory yesterday.

I've said more than enough about the sick US economy / market (can't tell one from the other now, can we?) in my earlier posting.

Regardless of the measures taken to alleviate the housing and credit crunch problems, and whatever the motives and agenda behind these initiatives, DOW seems it's going to be DOWN for a while.

Fundamentals and common sense aside, Dow's daily chart shows that it's sitting on support now. If consumer confidence data (to be released today at 10am EST) is good, or if there's release of ANY news that's mildly bullish, we should see bears taking a breather AGAIN. Maybe in the form of another doji or spinning top. Otherwise, for today, it's likely going to be a long bearish candle that falls through support.

That's my personal take.

Yes, I'm bearish.

Doesn't mean I'm a bear. I can be a bull anytime the market turns bullish :-D

Pilot, Seabloke, the SPF & NDP

One of the reasons I love my new home is its central location. It's an irony that being somewhat of a hermit, I've always chosen to live within, or just a few minutes' drive from, the business district. For up to a decade that I was in Edmonton, I've lived within the business centre.

Where I'm living now is so near to where our National Day Parade (NDP) will be held, that I get to see our air force rehearse their stunts whenever I'm home - which is, like, every time they have a rehearsal. Yes, I'm always home.

I LOVE, LOVE, LOVE fighter planes. Had I not suffered from severe myopia since I was a child, I might just have joined Pilot at the youth flying club.

But as I was growing up, and I can't recall at all now how and when it happened, I developed an intense fear of being in the air (Little wonder that I never once flew back in the last 5 years that I was in Edmonton. While for the first 5 years I came back at least once a year mostly for my Dad's sake, I saw no reason to come back after he passed on). So there goes my dream of ever flying a plane.

So, anyways, Pilot managed to maintain his perfect vision and grew up aspiring to join the air force. Strangely, he ended up in Commando camp instead. Today, he's a commercial pilot. A really mischievous one. Seabloke and I are still very tickled by this that he's been YEARNING to say over the intercom:

"Ladies and gentlemen, this is your Captain speaking (another thing that really baffles Pilot is why all captains have to identify themselves as "SPEAKING" :-D). It's been a pRessure having you aboard the XXXX. We hope you've had a nice fRight."

My baby brother, one of the few things in my life that I love with all my heart.

Like me, Pilot is COLD by default. We hardly talk (by that I mean both to each other , and with other people). But when we do get together, we talk about things that others simply can't get excited over. Things that intrigue us don't seem to interest anyone else. Well, maybe except for Seabloke. But I'm darn sure that a topic like the mathematical model of life will send even Seabloke running for cover...

It's bizarre, but with our National Day just around the corner, I've been thinking about Pilot a lot. I could have just picked up the phone to call and find out how he's doing, instead of missing him. But that's just not us. I could have asked him out for dinner. But get-togethers with Pilot happen only a few times a year - his birthday, Seabloke's, and mine; Christmas; Chinese New Year, and on occasions when Seabloke decided that it was time for the 3 of us to catch up.

National Day also reminds me of my former workplace. It's been a year now since I quit the force to find myself. I miss SPF. I miss my superiors - Supt B and DAC J. I miss my colleagues - DSP Daniel, DSP C.Razario, ASP Tze Ai, David, and many others. Most of all, I miss Dawn, who's now a TEACHER! It's been only a year, and a few of my ex colleagues have gone on to do different things. Fan has joined the private sector...boy, I really, really miss Fan. Those happy Traffic Police days...

Ok, I'm getting nostalgic. Something that's been proven to be really bad for my health.

There's something about Seabloke's birthday...Oh, but that was yesterday...

Apologies, Seabloke! You can't blame me. I HAVEN'T BEEN HEARING FROM YOU!! FOR 24 HOURS NOW!!

:-D

Simply A Lovely Day

Today's a special day.

It's SEABLOKE's BIRTHDAY!!

Happy birthday, Honey. Another year older. Hur hur hur...

And today's the first time in weeks that I drove D to work! Oh how I missed my tank!! Driving down the highway has always been an amazingly therapeutic activity for me.

But getting out of the house was a struggle initially. Had to take the car coz there're too many errands to run.

But even the errands turned out to have a calming effect on me. Sitting through a car wash was relaxing. Waiting at what used to be my favorite hangout, Cedele, for my bread to be sliced, turned out to be an extraordinarily pleasant experience - they've renovated and now has a very cozy smoking corner! :-D

It's a lovely day. How I wish Seabloke had been here with me. She couldn't make it for breakfast coz she's quit her full-time homemaker job to join a diving centre.

:-(

Well, it's still a wonderful day.

Off to pick D up now!

Pre-market Analysis 7/28

Looks like we're going to have a choppy session today.

There are a few things I look at to get a sense of what the market is likely to do.

First I look for a theme. Seems like we have more than one - housing and financials and OIL.

Then I look at economic data.

Finally, I look at how risk averse investors around the globe are. So I follow the close of the Asian and European markets, and I look at the Yen.

On the housing front, things just look worse to me despite the following report from Briefing:
The Wall Street Journal reports U.S. Senate lawmakers on Saturday overwhelmingly passed a broad package of housing legislation. Meeting in a rare weekend session, the Senate voted 72-13 in favor of the bill, which includes tax breaks for homeowners, a $300 bln program to refinance loans for struggling borrowers, and a dramatic rescue plan for embattled mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE). Other provisions include an increase in the federal debt limit to $10.6 trln and long-sought reforms to the Federal Housing Administration. "For Americans out there today with distressed mortgages and worried about their economic future, we hope this legislation could be the first piece of good news in a long time," Senate Banking Chairman Christopher Dodd (D., Conn.), told reporters after the vote. Treasury Secretary Henry Paulson said provisions in the bill dealing with Fannie and Freddie, including the creation of a new regulator, were especially important. "These components are orders of magnitude more important to turning the corner on the housing correction," Mr. Paulson said in a statement.

Extremely annoying trumpet blowing. Do I think that homeowners are really going to believe that the benefit of the $300bil handout is going to be passed on to them. ABSOLUTELY NOT. To me, it is apparent that this is yet another desperate answer to SOS from the very people who have, during better times, profited at the expense of people whose houses they are foreclosing now.

Bloodsuckers.

Nonetheless, both DOW and S&P have reacted positively. I'm really keeping my fingers crossed that they will continue to rise. One just need to do the math and use some common sense to see that there's really no light at the end of the tunnel YET. The pie is still the same pie. The pie has NOT increased in size. The slices have simply been snatched from those who thought they were going to enjoy them, to be redistributed to we-know-who. The bill is simply not the answer to the credit crunch problem, to say the least.

Which brings me to the next highlight of the day:

Bank failures: Consequences of expansion - WSJ
The Wall Street Journal reports Friday federal regulators shut down First National Bank of Nevada and First Heritage Bank of Newport Beach, Calif. The $3.2 bln in deposits of the closed banks were acquired by Mutual of Omaha Bank, a unit of insurer Mutual of Omaha. The branches are reopening Monday. The two failed banks were units of closely held First National Bank Holding, based in Scottsdale, Ariz. Both had been grappling with problem loans and had a combined first-quarter loss of about $140 mln. First National Bank of Arizona, which was absorbed into First National Bank of Nevada in June, had a Q1 loan-loss provision of $95.9 mln. Efforts by the struggling banks to raise capital this spring were unsuccessful, and they also approached other banks about selling themselves, according to a person familiar with the matter. They are the sixth and seventh banks to have been shut by regulators so far this year.

Need I say more about the health of the financial sector?

Now, we've come to oil. Price rebounded. Approaching $124/barrel. Here's an interesting read that should give us an idea of whether price of oil has seen its top.

Both Europe and Asia's markets have closed down.

USD/JPY 60-min chart is showing a short-term downtrend.

NOw, the DOW daily chart:



Here's what I see:
rally that began on 16 July couldn't go any higher than its previous support and came down on 24 July, taking all the gains from 18 Jul to 23 Jul. In the midst of weak market internals and chaos in the housing and financial sector, I can't see last weeks' rally as anything more than a deadcat bounce.

On top of that, I see a bearish hidden divergence, which reinforces my view that the said rally is shortlived and the down trend that began in May will resume.

But given the housing "good news", i'm thinking that the market should find somekind of support at its previous session's low. We might be trading in a box-range until 30 Jul.

What follows after the first few trading days of Aug doesn't look rosy to me. But that's my take. And it's what I see on my chart - a bear flag.

But the market (Fed?) always tells its story best.

Will be trading the ER2 tonight. D opined that I've chickened out of trading after something I did really wrong about a month ago, which saw me losing in one trade every penny that I've ever made and have YET TO MAKE.
Maybe I did chicken out.

Cutting losses seems to be D's forte, not mine.

Like I said, I trade like a man (refer to my earlier posting on the topic here)

:-D

Back to Basics

Was reading KH's blog and found his latest entry on trading ER2 awfully enlightening.

I've been spending most of last 2 weeks catching up on my reading. I spent the rest just really going through what I've been doing so far and pondering on whether they make any sense to me at all.

Like KH, I've ditched all my indicators. D knows this about me: I have no qualms about scrapping months of work or anything that DOESN'T WORK for me.

I'm not against Richard Dennis' turtle model, neither am I an advocate. My passion for trading has little to do with its potential monetary reward. I want to be great at trading for reasons that I won't discuss today.

Anyways, for the past few days, I've been watching just price movements and studying the Dow.

I should have more to share after I'm done with what I'd call a very small-scale research on a theory I'm developing.

Pre-market Analysis 7/25

Was looking at the DOW chart and noticed a few things.

Market saw its peak in Oct last year. From then on, we've seen some rather fierce rallies but more often than not, they are immediately followed by steeper declines.

Jul 16's rally after the sell-off in mid May seemed short-lived. But that's hardly surprising.

July usually doesn't end well during bearish times.

Today's Friday. Friday in a non-bullish time. Generally, this means market participants will be more reluctant to hold their positions through the weekends.

Yesterday's sell-off came after the rally that began on 16 July. Whether the rally will resume is really a matter of how confident people are that there's a basis for the rally. Positive company earning reports aside, mid July is traditionally bullish anyway thanks to the inflow of retirement funds...

I'm thinking it's likely that today would see a follow-through from yesterday's sell-off.

Why do I think that?

Because the US economy seems to suck, albeit not big time:
- Weekly jobless claims figures are bad,
- Existing home sales figures are not rosy either (spells trouble for the financial sector, which has been THE sector moving the market for a while now)
- Sectors such as the hotels, resorts & cruise lines, automobile manufacturing, etc did poorly (when these guys don't do well, it says a lot about people's confidence in the economy)

On the news front, we see a mix of good and not-so-good reports and news from various companies across the sectors. But what caught my eyes was this report:

"...after BofA's (BAC) disclosure of Countrywide's loans, could be worth far less than the stated values, and reserves taken against possible losses are inadequate. And if bank capital is overstated, firms could again be forced into dilutive capital raising. The reduction in the value of Countrywide's loans raises the question of what would happen to other banks if they similarly marked loan portfolios to prices they could fetch if sold in the market today. Typically, banks create reserves equal to 1.5% to 3% of those portfolios, but the prices applied to Countrywide's loans show those set-asides could be too low. Applying a mark of 5% -- more aggressive, but still well below Countrywide's -- at Citigroup (C), J.P. Morgan (JPM), Wells Fargo (WFC), Wachovia (WB), Washington Mutual (WM) and Bank of America (BAC) results in 10% to 30% reductions in the banks' stated book values. Push the mark to 7.5% and book values are 20% to 50% below stated levels. "That is why you see so many banks trading at such a discount to book value," says Craig Emrick, a bank analyst at Moody's Investors Service."

AND, OIL HAS RISEN AGAIN, a follow through on previous session's gain after dropping for 2 weeks.

So, I'm really not so sure that the market will fade up today.

But then again, this is a crazy market, and anything can happen.

Good Trading Course

Regarding my posting on Tribute to My Trading Coach, Simply the Best Coach in Basics of Trading, I have people asking where they can find more information on M and his course.

Trading for a Living is the name of the course and details can be found on their website here.

M doesn't advertise, but conducts regular previews where you can pick up really useful tips from him on trading basics eg. how to make good investment decisions, what tools to use, and what kind of information you need to help you make those decisions.

These previews are free, and are conducted over the weekends.

Here are the date and time of his next previews (tmrw and the day after):

Saturday 26 July 2008, Sunday 27 July 2008
Time: 2.30pm – 4.30pm
Venue:
#08-12 Burlington Square
175A Bencoolen Street
(right next to Sim Lim Square)

If you are seriously looking at trading to supplement your income, or even considering trading full-time, you'll find M's course immensely useful.

Whether you're keen to be a daytrader, swing trader or even a longer term investor, M will be able to impart you with the knowledge and skills to go into the market with confidence.

If you're looking for a coach that teaches options strategies in a language you can understand, do check out M's course and sit in at his preview tomorrow or on Sunday.

Reply

Yesterday was the first day since July 14 that I went out (not counting the day I went back to my old home for an hour and then came straight back to my shell after that).

Was supposed to have breakfast with Seabloke, but she couldn't make it. Was supposed to have lunch with Ken, but I overslept and didn't make it.

But I'm proud I made it to coffee with JD. I was early and even had some time to catch up on my reading while waiting for him.

Now, how do I even begin to describe JD? He's 11 years younger, and I knew him when he was coaching my batch at the AKLTG's Patterns of Excellence Program.

I always tell JD that for someone his age, he's got a really old soul. And he's one of the rare few that somehow is able to get me to step out my house to get some sun.

Even my granny couldn't get me to leave my house to visit her...

Anyway, we spent more than 3 hours just chatting over coffee and hanging out at the bookstore.

When it was time for me to leave for M's class, JD took a train with me, alighted with me, and walked me to the building where M's class was held.

At first I was amused that he actually thought I could lose my way.

But I was grateful he did, coz if not for him, I really wouldn't have found the building. Yes, I'm hopelessly lost in the country that I've lived for 23 years.

Class was very fruitful. D couldn't make it coz he had to work. The plan was for him to pick me up after he knocked off, but he was still in his meeting when class was over. I decided to wait for him, coz I doubt I knew where I could get a cab, and because my heels (not been in them for the longest time!) were killing me, there was no way I could walk aimlessly til I could get one.

M was very nice and waited with me.

D didn't take long to arrive. We had a smoke before we got into the car. I couldn't stop talking about my day.

Perhaps JD is right. I do need to see some human beings. It's gotten to the point that I actually felt nervous on the streets. In class, I had to put my bag on the chair next to me to prevent anyone from taking that seat coz I wasn't sure I could stand having a stranger sitting that close to me for 2 hours.

I knew that something's seriously wrong with me when weeks ago, I had what seemed like the onset of a panic attack, just from shopping with D. It was the Great Singapore Sale and the crowd overwhelmed me.

I gather I'm never going to be able to return to corporate life. One day out of the house, and I was thoroughly drained. I slept throughout after seeing D off this morning.

I'm happy with my life now. I love what I'm doing, coz I love to analyze things to death, and I love not having to interact with people. I have loving siblings, and a small circle of very good friends that never fail to warm my heart, and D, who's always going to be my best friend.

I don't remember a time that I really hated my life. I've turned my world upside down, but it's my world nonetheless. And I can't hate it. No matter how upset I could get sometimes, I always feel that things could only get that bad - much like those days when people kept talking about the market having seen its bottom, yet each day saw a lower low and the market never stopped churning out optimists.

If someone were to ask me, I would say that the only regret in my life thus far, is that my existence has not been of value to anyone. I love to be in my own world so much, and embrace my values and my likes and dislikes so much, my life has had no room for others. I did as I wished, and lived as I wished. I love my freedom so much, I wouldn't give the world a new life. But well, the world is over-populated as it is now anyways...

And if someone were to ask me, I would say that the only past that I can't cherish, is the one where I've turned others' world topsy-turvy, and, scarred the blameless.

Other than that, I have no complaint.

Being a Christian, I believe that my life is truly blessed.

So do I believe in happily ever after still?

Yes, I do.

I believe, and I know, that everyone can live happily ever after, if only he/she would choose to.