Pre-Market Analysis (ER2) 8/18

(Click on charts to enlarge)

Dow Daily

S&P Daily and COMPQ Daily

Performance of Major Indices

Possible market-moving factors (for Aug 15)

1. Oil fell to $111
2. Retail (better than expected earnings in the sector)
3. Low trading volume (typical summer volume) amplifying price moves

Factors that will potentially move the market today:

1. Oil (now at 114.70, up from Fri’s 111)
2. Financials
3. Friday’s intraday move

Economic Data to be released today: Nil

________________________________________________________________

Russell 2000 (E-Mini)

Like I said before, August is traditionally a bad month for the bulls. This is in part a result of market players going on summer holidays, and partly due to net selling of shares and funds to support seasonal expenses (travels, tuition fees, etc).

Looking at the charts of DOW, S&P and COMPQ however, it looks like Aug isn’t going to be so bad after all. That said, fundamentals will determine the extent to which these patterns develope as I think they will. Price of oil, the health of the global economy, and the perceived duration of the prevailing financial crisis and housing slump remain the foreground issues - in an atmosphere of uncertainty, any news that imply a deviation from the expected will cause the market to over-react and price to swing wildly.

RUT

The past 2 weeks have seen the Russell 2000 diverging positively from DOW and S&P on several occasions. The small caps are clearing showing resilience in the disorderly market and economy. For the week of Aug 18-22, RUT has reaped the highest gain among the major indices, when DOW lost 0.6% for the week.

As far as this week is concerned, RUT could finish in the positive territory again.

ER2 in the short-term

ER2’s rally since mid July seems to be losing momentum and we are starting to see some sideway moves. A surge in volume on Friday that is accompanied by a drop in open interest tells me that the high of 754.70 reached is probably a result of SHORT COVERING.

Weekly chart (below) shows that it’s possible that we could move up further, but declining open interest is telling of the topping of a trend.

If open interest were to drop drastically from this point on, and price of ER2 were to go down with it, it would mean that those who are in long positions are offsetting them, and ER2 will reverse to its previous downward move. Any chance of ER2 continuing on its current upward trend will depend on open interest stabilizing at the current level of around 570,000.

ER2 today

There’s a bearish divergence for Aug 14 – 15, so there’s a possibility we won’t see a high that’s higher than Fri’s high of 764.61. I’m thinking that we’re likely to trade in the range of 744 to 758 today.

ER2 Weekly

ER2 Daily

An Article a Day for D: Simpler is Simply Better

Pre-Market Analysis Weekly 8/18 - 8/22

(Click on charts to enlarge)

Dow Weekly (refer to Technical Analysis: Dow Monthly & Weekly)

S&P Weekly and COMPQ Weekly

____________________________________________________________________

Performance of Major for the week (Aug 11 – 15)

Possible market-moving factors (for Aug 11 - 15)

1. Oil (fluctuations in oil prices were partly the reason for some of the wild intraday price movements)
2. Financials and housing
3. Retail sector went up by 4.8% (surprisingly, amidst concerns over inflation and the gloomy economy)
4. Airlines (notable gains, which is not surprising given oil’s decline through the week)
5. Low trading volume (typical summer volume) amplifying price moves

Factors that will potentially move the market this week:

1. Oil
2. Financials and Housing (foreclosures and declining demand for loans are the foreground)
3. Global economy (Europe, China and other parts of Asia are seeing slower growth, if any and this affects demand for resources. Central banks are not likely to tighten their monetary polices in the face of weak growth. USD will have an advantage for now)
4. Economic reports

Economic Data to be released for this week:

Technical Analysis: DOW Monthly & Weekly

DOW MONTHLY

Looking at the monthly chart, one thing stands out clearly to me: I can see whatever that I want to see.

If I want to see a head and shoulder pattern, it’s there.

If I want to see a bullish flag, it’s there too.

Head and shoulder (HS)

I’m going to expore the HS pattern first.

June and July has closed below the neckline (in green), and that is one of the criteria of a successful formation of a HS.

However, July is a hammer.

Although the rally from May to July is accompanied by increasing volume, which is otherwise indicative of a continuation of the downward move, the last of the 3 candles moving down turns out to be a hammer.

That tells me that the sellers have sold all they want to sell to buyers looking for a bargain. Not a very bullish sign, but there’s a clear support preventing price from plummeting further.

I’m going to go backwards to Jan to take a look at the sentiment when volume'a at the year’s high.

Jan candle is the 3rd from DOW’s record high.

What stands out about Jan is the volume and the length of the lower shadow. By this time, price has come down on 2 consecutive months from DOW's highest point, and the size of the body of the first bearish candle is not very comforting. What’s more, the doji before it suggests short covering (when bears see that price is not continuing to go down, evident from the doji/hanging man on Aug 07) , NOT more euphoric buying.

(So you now have a market that’s at least not optimistic anymore. And if one were to look back at history, he’ll see only small bearish candles at minor pullbacks. The size of Nov 07’s candle suggests anything but a minor correction ahead)

The month that follows (Feb) shows a market that’s undecided: even the bears are not very sure that market has topped. Although price has opened below Jan’s close, the range has dropped substantially. When I look at this candle, then compare it with Feb’s candle, and then check the volume, I see that Jan is where the real fight between bears and bulls happens. By Feb, it seems players are pausing to assess where the market is going.

The 4 months spanning Feb - May seems to be a period of short covering and profit taking (when bears see that price is not going down further). There's clearly no renewed buying interest.

In June, selling picks up again.

In July, I see some buying interest.

When I put everything together, I see a market that wants to continue to go up. Price has at this time retraced to Fib level 61.8.

A hammer at Fib 61.8…hmmm….I have to say, it’s going to take a lot more for people to give up on the market. The set-up is simply not for a reversal YET. Not to below 10,000, and definitely not to 7250 (YIKES!!!).

So, here’s my take: though traditionally a bearish month, what I think we’ll see for Aug is going to be a bullish candle; my conviction further supported by the appearance of a bullish hidden divergence (see my earlier post for more on hidden and classic divergence) for period Mar 07 to July 08.

The divergence suggests that there’s still strength in DOW’s primary trend, which is UP.

Hence, what I’m seeing here is a HS that’s going to fail, which should send DOW up.

Bull Flag

The uptrend is even more pronounced if I were to build my hypothesis on the premise of a bullish flag.

Granted that DOW is currently caught in the downward channel of the flag, volume is declining as the channel develops.

Setting aside the issue of a breakout above the channel for the time being, there’s currently at least still room within the channel for price to move up.

Supported by a hammer, what I see for Aug is clearly a month that’s going to end up in the positive territory.

DOW WEEKLY

What I see is a failed head and shoulder (price break above resistance formed by neckline in green), and the forming of a bearish wedge.

Judging from the volume, what I can say is that the rally is not supported, but it doesn’t tell me that price will not continue to inch up with even lower volume for the week ahead.

I can’t tell from my weekly chart if we’re going to end up with a gain or a loss for the week.

Now, let’s see: I’m bullish for the month, we have 2 more weeks to go, and we are still in bullish region. If this week turns out to be bearish, we could end up with a loss for Aug since we can’t pin our hope on the last week of Aug (generally DOWN).

So, the week of Aug 18 will have to see a gain for a bullish Aug to happen.

But without more information (eg. news), I'm just going to say for now that I'm expecting DOW to trade within the range of 11,500 to 11,900 for Aug 18 - 22.

Rachit

It's been almost a year and a half now since I graduated from the Patterns of Excellence (POE) program run by Adam and his team.

This is THE program that I blame for my transformation.

I used to be cold as ice - and I took a lot of pride in that.

After the program, I became human.

Yikes!!!

So, what triggered this whole walking down the memory lane episode?

My favorite POE coach, Rachit, is the culprit.

Rachit (I like to call him Rush-it, coz I think that's how his name should be pronounced. But Rachit calls himself "Racheat"...) sent out a request for a character reference, and in the process of putting up one for him, memories came flooding back...

Anyway, here you go, Rachit (I'm sorry it's longer than 8 lines...you can't be described in 8 lines, honey. "TRY" 8 volumes of Rachit-the-Rat comics...):

Rachit is a little rascal and a rat.

Yes he is.

He made me cry.

I remember the first day at POE, when everyone was going around hugging and getting to know the others, I managed to hold my stay-away-from-my-intimate-5meter radius- zone stance for a good 2 days, and getting me to put my all into the activities posed a challenge to the coaches. It took Rachit and his wit and charm to open me up. If not for him, I would not have received the full benefit the program had to offer me.

The crying part did a lot of good for me.

I would warn anyone against doing what Rachit did to break my defenses though, unless you're as perceptive, eloquent and compassionate as he is.

Youth can sometimes be a disadvantage; but in Rachit's case, his age would be the last thing you would focus on when you're interacting with him (In any case, Rachit is way too matured for his age. I don't know what made him grow up so fast - life experiences probably had a lot to do with it - and I don't dwell on it too much).

What I will always remember about Rachit is that he was one of the rare few who was not intimidated by my hostility nor discouraged by my apathy. He did what he was there to do: empowering others to find themselves.

And I'm giving him a score of 11 out of 10 for having done an amazing job.

Amare Per Amore

Love.

A verb. A noun. A concept

As a verb and noun, it's nonplussing; as a concept, it's simply crap.

All I know for certain about love as a concept is that it sells - everyone at one point in his/her life buys it.

A friend sent me a beautiful real-life love story about a couple in China who were forced to live in the mountains because their union was not accepted by their community. When they first met, the man was 19, and the woman was 29 and widowed. 50 years on, the man died, leaving behind his love, and the stone steps up the mountains that he had spent decades hand-carving for her. For the 50 years that they were together, they've never been apart, not even for a day. Many were so moved by the story they visited the cave that this couple had spent almost their entire life in.

It's difficult for me to overlook the one point that stands out so sorely in the story that explains why they stuck with each other: they were, literally, STUCK WITH EACH OTHER.

But before I go into that, the other thing that baffles me are the 6000 stairs that the man had painstakingly built for his love, who had never needed them in the first place - she never came down the mountains.

What I know is that it definitely is a demonstration of love. Whether it's done out of love, I know that I'll never find out.

I got to thinking about this: when it comes to love, is it a must to act?

Can we just love, and not take any action until such time that it's needed?

I know that I love someone when I respond immediately to the person's call for help. If I can drop everything without hesitation to attend to someone, I know that I must love this person.

Coming back to the story of the couple.

I told D that circumstance was what had been bounding them together. They were technically on the run - in the eyes of their society at least, their being together was more than a taboo.

So here we have a man and a woman, confined to their cave, and have only each other for company...

Had the same couple been placed in our society - let's say, the woman to work for a certain MNC, and the man to work for another...

How would that change their story?

Would their live still be simple and uneventful?

Would their bonding still be as strong?

Would the man not cast a lustful glance at his attractive female colleagues? Would the lady not fall for the suave executives in her department?

Would they not start sharing dreams and hopes and secrets with other people rather than with each other?

Would they not be tempted at some point to ponder on whether they've gotten the best deal? Would they not start to feel like they deserve someone better, someone who actually understands and cares for them, someone who doesn't pick on everything that they do and say and think?

Simply put, when not isolated, or more aptly, insulated, from the real world, would they still be able to love each other forever?

I have never wanted to believe that love is something you FALL INTO. To say that you've fallen in love is to say you've no idea what you've done. That effectively remove the word "responsibility" and "commitment" from the picture.

To me, love is something you have to consciously and willingly, and perhaps even rationally, give to a candidate of your own choice. And once you've taken your pick, you stick with him through thick and thin, and you go wherever he goes. If you ever have to live apart because of work, and if ambition gets in the way, then do whatever it takes to remind yourself who the priority in your life is. Not what, but WHO.

Because love is not an ideology.

Love is a living human being.

If you can't commit, DON'T ever love.

"The journey to Truth and Light must first cross the ocean within." Something that Ai Mei sent me days ago that has kept me dwelling on what"crossing the ocean within" means.

It's beginning to dawn on me that it means fighting the devil within me.

To love someone, a vow to stick around is not enough. On top of that, you have to stop expecting.

That, I suppose, is what love is about ie. to be with someone without expecting to get anything - happiness, in particular - back in return.

If you really love someone, you'll find happiness within, no matter what.

Anyway, it's quite impossible to know you're miserable when your focus is directed away from yourself.

:-D

No Trading Tonight

No trading for me tonight.

D can use a nice, long massage session.

He needs cheering up :-D

And I need to step away from my workstation.

ER2's lifelessness is driving me crazy.

Pre-Market Analysis (ER2) 8/15

(Click charts to enlarge)

Dow Daily

S&P Daily and COMPQ Daily

Performance of Major Indices:

Possible market-moving factors (for Aug 14)

1. Oil
2. Financials (investors scooping up what they perceived as bargains)
3. Low trading volume (typical summer volume) amplifying price moves

Factors that will potentially move the market today:

1. Oil, OIL, OIL!!! (It’s still falling)
2. Financials
3. Yesterday’s market rebound
4. Anything else under the sun that behaves abnormally (for instance, I COULD – if I choose to - think it’s ominous if price of oil were to plunge to $99 a barrel…)

Economic Data to be released today:

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Russell 2000 (E-Mini)

ER2 has been on an uptrend since mid July, and price is now nearing Jun 5’s close of $764.

Open interest has been moderate though…when compared to what was seen before mid July, open interest has definitely been lower throughout the current rally.

This is indicative of a weak market. But weak or not, price is going up, and that’s the fact. So, unless there’s any sign of market topping, I’m going to stay on the side of the bulls.

That said, for someone who’s more comfortable shorting than longing (pun TOTALLY INTENDED!), I’m definitely waiting for volume and open interest to spike,and priceER2 to drop from its top.

And I think it’s going to happen sooner than later (vulnerable market with price crawling and inching its way up…really reminds me of yesterday’s painfully sluggish session).

When that happens, it should send ER2 plunging.

When are the summer vacationers coming home to play??

ER2 Daily and ER2 5min

At 0615 EST

An Article a Day for D: Price Analysis – A Top-Down Approach

My Trading Journal & D II

D likes the new format for my pre-market analysis; I don't.

So, I'm going to continue to do my monthly and weekly analysis this way, while my daily analysis will stay the way that's more suited to D's taste.

Pre-Market Analysis (ER2) 8/14

Performance of Major Indices:

% Change	Aug 13	Aug 12	Aug 11	Aug 8	Aug 7
DOW	-0.94	-1.19	+0.41	+2.65	-1.93
S&P 500	-0.29	-1.20	+0.69	+2.39	-1.79
COMPQ	-0.08	-0.38	+1.07	+2.48	-0.95
RUT	+0.37	-0.81	+2.28	+2.93	-1.72

Possible market-moving factors (for Aug 13)

1. Retail sales report
2. Oil
3. Low trading volume (typical summer volume) amplifying price swings
4. Long-drawn-out concern about a weak financial sector
5. Ongoing bad news from banks and brokerages underpinning public’s concern that the housing and credit crisis are far from over

Factors that will potentially move the market today:

1. Oil
2. Financials
3. Yesterday’s intra-day trading movement (indices bouncing off lows during mid-day)
4. Economic data report

Economic Data to be released today:

Time (EST)	Data	Consensus	Previous
8:30a.m	Initial Jobless Claims	8K	+7K.
8:30a.m	Consumer Price Index	+0.4%	+1.1%
8:30a.m	CPI, Ex-Food & Energy	+0.2%	+0.3%

___________________________________________________

Russell 2000 (E-Mini)

Estimated Volume	241, 852
Expiration	Sep 19 2008
Contract high	845.6 (Oct 29 2007)
Contract low	646.0 (Mar 17 2007)

ER2U8 (For Trading on Aug 14)

Close	747.90
Change	0.09 %
Volume	439
Open Interest	575,664	00:00 EST
		05:00 EST
		06:00 EST
		09:20 EST

An Article a Day for D

Psychology of a Bottom

My Trading Journal & D

I started my blog in Jan this year, partly for fun, and partly coz I really wanted to start keeping a journal.

I closed it in March.

Late May, I started writing again, partly for myself, and mainly for D.

Though this was meant to be my trading journal, the pre-market analysis bit was actually purely for D.

The analysis helped him for a while. Then it got too long and I realized he wasn't really reading everything. He probably had enough time to scan for the words "bearish" and "bullish" and that would become the position he would take for the day.

That, to me, is bad.

So, beginning today, my analysis no longer includes my personal take on where the market's likely to head. I gave only information that D would not have had the time to gather (since he works full time and doesn't get to come home until about half hour before market opens), and drew attention to what he should be looking out for as he trades.

For the past 2 weekends, D has been learning some new tools that he was able to immediately put to use...and I've made a promise that other than during these "tutorials", I shall keep my mouth shut and let him do his thing when he's trading.

It's working :-)

Pre-Market Analysis 8/13

Market went down yesterday:

DOW -1.19%

S&P 500 -1.20%

Nasdaq Comp -0.38%

Russell 2000 -0.81%

Possible factors:

1) Financials

2) Housing

3) Retail Sales

Factors that will potentially move the market today:

1) Expiration of rule governing naked short selling in 19 major U.S. financial stocks

2) Financials

- Banks are facing steep losses on sales of foreclosed homes

- Declining demand in loans

3) Oil

- Crude oil inventory for the week Aug 4-8 will be announced at 1030am EST today. Analysts’ surveyed expected inventory to rise by 500,000 barrels

- Oil market is NOT acting normal. While conflict between Russia and Georgia should cause price to go up, it has not. Other factors are apparently at work - some say it's the strengthening of the USD (I doubt so though), others have conspiracy theory (my favorite!) of some sort. Bottom line is, it's volatile. Best thing a daytrader can do is to keep close tabs on changes in oil prices throughout the day.

4) USD

5) Retail Sales data for July

- Economists surveyed expected flat sales for July compared to June

At 0710 EST, this is how the major indices and futures are doing (in points):

Economic data to be released to day (Time in EST)
8:30a.m. Jul Import Prices ex-oil: Consensus: +1.0%. Prev: +2.6%.
8:30a.m. Jul Export Prices ex-ag.
8:30a.m. Jul Retail Sales: Consensus: -0.3%. Prev: +0.1%.
8:30a.m. Jul Retail Sales, Ex-Autos: Consensus: +0.5%. Prev: +0.8%.
10:00a.m. Jun Business Inventories: Consensus: +0.5%. Prev: +0.3%.
10:30a.m. Crude Oil Inventories

Pre-Market Analysis 8/12

This was how market fared yesterday:

Dow +0.41%

S&P 500 +0.69%

Nasdaq Comp +1.07%

Russell 2000 +2.28%

Market moved up strongly for the most part of yesterday's session on declining oil prices. The rally was cut short when news about banks having tightened their lending requirements was released.

CHARTS

DOW


COMPQ


RUT


My Take for the day:
Looking at the charts above, and the performance of each index yesterday, it seems that COMPQ and RUT can go up further today.

The divergence between RUT and DOW shows that RUT has strength. With oil continuing to drop, I can't help but feel bullish about RUT today.

DOW - granted that it has made a high that's higher than the previous high, it has done so with declining volume. A bearish divergence in MACD warns of a pull-back from the rally that began in mid July. I don't feel bullish about DOW at all, but am not bearish either (oil is one of the reasons - but it's so volatile now I will keep my finger crossed that it's going to continue to go down).

Economic data to be released today:
0830 Trade Balance for Jun Consensus - $61.9B Prev -$59.8B
1400 Treasury Budget for Jul Consensus -$86.8B Prev -$36.4B

Adrielle

Thank you, Adrielle.

You have a really beautiful blog!

It's a shame that Portuguese is really not my department (had to use Google Translate to decipher your note...).

I haven't an inkling where to leave a comment for you, and since I can't find your email address on your profile page, I figure I'll just have to reply you this way.

Cheers!

D - The Manic Scalper

D's from another planet.

Where he came from there must be an endless supply of sugar.

He's hyper.

He goes in and out of trades, and he talks almost non-stop and checks out video games as he trades.

That's his "working mode".

From market open to market close, I'm the quiet one.

For the most part of the trading session, I'll just be watching my charts and drawing lines and looking for recognizable patterns. I can't be distracted. When I am, I will rather go out for a smoke than make an attempt to chase a missed opportunity.

Was telling D a while ago that there's no such thing as a lost opportunity, only plenty of chances to lose your money.

I hate losing money.

D hates losing money too. But I think he hates non-action more.

D's always the harder worker.

In fact, as I was completing my sentence above, he's made another 1 point profit.

Like I said, D has definitely found his way.

:-D

Weekly Analysis & Pre-Market Analysis 8/11

It was party on Wall Street on Friday.

For the week of Aug 4:
- DOW gained 3.6 %
- S&P 500 gained 2.9%
- Nasdaq gained 4.5%
- Russell 2000 gained 2.5%

Which is in line with what I said in my weekly analysis.

D commented I could toss a coin and come up with the same conclusion.

FINE.

D shall do his own analysis from now on.

>:)

I've said this more than once and I'm going to have to keep repeating it: I do NOT predict the market.

And being right doesn't make me feel like I deserve a trophy.

But being wrong would make me search for the reasons that I was wrong, and in the process, I picked up new skills and knowledge that I believe have made me become more attuned to market signals and sentiments. And THIS is the main reason that I do my pre-market analysis.

Ok, I've sidetracked again... Someone once commented that I love going North, South, East, West, then come back to East, then to South (something along that line)etc when I communicate. Simply put, I'm hard to follow.

And I agree. I lose some people at every para and I wonder how many actually survive an entire posting I put up...

OK, I've gone to the Arctic and back...to TRADING.

WHAT I AM EXPECTING TO SEE THIS WEEK

Nothing much has changed in the finance and housing arena, so anything that could drastically move market now could only come from OIL and econ data.

OIL
Crude oil has gone up a dollar and closed at $116 a barrel. That's a rather unpleasant surprise after the previous $5 drop. Threat of interrupted supply due to tension between Russia and Georgia is likely the main cause. A rising dollar is allegedly the other factor.

ECON DATA
Econ data to be released this week (calendar extracted from briefing.com):



Little wonder that it's difficult for me to be bullish for this week (More details below)...

So much for news and all...after all, it's hours away from market open, and ANYTHING CAN HAPPEN from now til then...

CHART TIME!!!

DOW Weekly



WHAT I SEE

I see a lot of things that make me see bears everywhere.

1) Bearish Flag

2) Price rising and closing above major resistance without corresponding rise in volume.

3) Long body of Aug 4 candle suggest an overbought situation.

I'm bearish on DOW for the week.

DOW Daily



WHAT I SEE

- Bearish divergence for period Jul 23 - Aug 8

- Major resistance at 11756 posing a challenge to DOW

- Declining volume since Jul 18, which is rather telling of a market that's not inviting new buyers

- Price is below 200 MA and 50 MA is below 200 MA (what's more, they don't look like they are converging).

Hence, for the day, I'm bearish too.

That officially makes me bearish on the DOW both in the intermediate (see my earlier post) and immediate term.
______________________________________________________________

Nasdaq COMP Weekly



WHAT I SEE

1) Week of Aug 4 has closed above resistance, which was previously a support formed by a hammer on Aug 13 07. Another close above would be more assuring for the bulls.

2) Price rallied from on Mar 17 this year with the formation of a bullish engulfing pattern and found resistance in mid may - early jun.

Two bearish candlestick patterns drove price down to slightly above its previous low (on Mar 17). A hammer on Jul 14 sent price up again.

Provided there's not going to be any news that are more dampening than what we've seen, price could likely go up to resistance formed by neckline (in green) of previous head and shoulder pattern.

Why do I think that?

Answer's the hammer.

As far as this week's concerned, I'm bullish on COMPQ.

As for today, I'm expecting some profit taking from Friday's session.

Daily chart (see below) shows a bear wedge that's failed; price has closed above resistance twice.

This is enough basis for COMPQ to continue its rally in the next few days.

But for today, I'm not expecting price to go higher than Friday's.

Not when oil's going up.

COMPQ Daily


___________________________________________________________________________

RUT Weekly



WHAT I SEE

- Price testing major resistance and

- Price moving in between 50 and 200 MAs, which are closing up.

Rut looks like it will trade in a boxed range of 685 to 785 for the week.

RUT Daily



WHAT I SEE

- Price closed above resistance and broke out of bullish wedge on Fri

- Doji on Jul 15 sent price climbing steeply until 23 Jul but shooting star on Jul 23 and bearish engulfing pattern impeded its upward move. Long body of Aug 8's bullish candle could help give a little lift though.

I'm not expecting a very strong move up today from Aug 8's session, but am still bullish on RUT for today.