Has The Stock Market Turned The Corner

Over the past few days we've seen the stock market sell off rather sharply and as a result I believe stocks have turned the corner. Today the Dow broke through its January low which I consider to be bearish.

If we take a look at the big picture (weekly chart) you will notice that the uptrend line that began in March of 2009 has been broken. The weekly MACD has also crossed giving a sell signal however I must add that we need to wait until Friday's close (end of the week) to confirm a weekly MACD sell signal.

The fact that the dollar has been strengthening also adds a bearish tone to the stock market. I just wish this scenario happened last month when I was loaded short but hey, that's trading.

What's Next For The NASDAQ

Stocks were down today and as you can see in the above chart the NASDAQ's volatility is contracting. I think a close above or below the triangle will determine the next move for the stock market.

In the lower panel is the On Balance Volume Indicator which is looking somewhat weak right now. I'm still short the Q's with a protective stop right above last week's high.

Using Non-Confirmation To Trade The Stock Indices

Today was a great example of using non-confirmation to trade the stock indices. A healthy stock market is when all the major indices move together making new highs and new lows. If we happen to notice the Dow making new highs but the NASDAQ is not, that is a sign of weakness and the odds increase for a sell off to take place which is exactly what happened today.

If you look at the above 5 minute two day chart of the Dow Jones Industrials and the NASDAQ, you'll notice something very interested that took place. At around 11:00 the NASDAQ rallied and took out the high from the previous day but the Dow Jones Industrials failed to take out the previous day's high. This is considered bearish because the Dow failed to confirm the new high in the NASDAQ. This is a great example of non-confirmation and as you can see the stock market sold off going into the close.

Nothing works 100% of the time, but if you are going to trade you want to put the odds on your side and one way to do so is by taking advantage of non-confirmation in the marketplace. Use it well.

What Is The 4-Year Cycle In The Stock Market Telling Us?

I haven't heard much lately about the 4 year cycle in the stock market so I'd like to post my opinions about this well known and very accurate cycle.

For those of you who are not familiar with the 4 year cycle I suggest you get your hands on a long-term chart of the Dow Jones Industrials and observe the significant lows or buying opportunities that have taken place over the past 100 years. You'll notice that approximately every 4 years there is some kind of a low that takes place in the stock market and it's been very accurate over a long period of time.

In the above chart I show the S&P going back to about 1981. Notice how every 4 years the stock market makes a low which is followed by a rally. The first low on this chart took place in 1982... 4 years later in 1986 we have another cyclical low where the market had an explosive rally just prior to the 1987 crash. The next low in the cycle takes us to 1990 where we saw another buying opportunity. The same thing happened again in 1994, 1998, 2002 and 2006.

Based on this cycle, the next projected low for the stock market is due in 2010! This means stocks should trend lower going into the fall of 2010. I know it's an ugly forecast and many will disagree with me, but from a cyclical viewpoint I have to be looking for stocks to move lower to sideways over the next 2 years.

Does this mean I will only play the market from the short side for the next 2 years? Of course not! There will be opportunities on both sides of the market depending on which sectors you are trading. The point I'm trying to bring out with the above chart is that the majority of stocks in my opinion will be under selling pressure until the 2010 cyclical low is established. Until then, I'd favor selling short into rallies.

Potential Trade In The Canadian Dollar

The Canadian Dollar had had a rather sharp rally over the last two weeks and is now testing a very powerful resistance area. For the first half of 2008 the Canadian Dollar has established a very significant support level (97 area) up until August when the currency finally broke through this floor of support. Classic technical analysis states that support should now become resistance and I think that's what we are seeing take place right now.

You'll notice that the stochastics are at an overbought level which has coincided with wonderful shorting opportunities over the past few months. In fact, the last 4 significant highs in the C-dollar could have all been identified in real-time trading had a trader been using this oscillator.

Rather than pic a top, I would wait for the stochastics to actually cross back below the 80 level BEFORE shorting this currency. If the Canadian Dollar blows right through resistance before the stochastics turn below 80, all bets are off and no trade should be taken. Basically what we are looking for is for the stochastics to confirm that resistance has held. As always, we'll see what happens!

Stock Market Trading Method

I'd like to share with all of you a method or an approach I've been using to trade the stock market on an intermediate term level. I know there are many people out there claiming to have the holy grail for trading stocks but in my opinion those methods never hold up in real-time trading. What I'd like to do is present a method that is very simple and will keep you on the right side of the stock market around 75% of the time. Let's begin!

The first thing you want to do is identify the trend. Everyone has their own favorite method for determining what the trend is and I'm no exception. I prefer to use simple moving averages based on closing prices. When it comes to trading the stock market, I found success using the 30 and 60 week simple moving averages. If the 30 average is above the 60, the trend is up. If the 30 average crosses below the 60 average the trend s now down. I am not using the averages to trade or time the stock market, I am using them to determine the trend and noting else.

OK, now that we know how to identify the trend we now need to be able to time the stock market for entry. If you've been a reader of this blog, you will know one of my favorite tools for timing into trades is the stochastic oscillator. If the trend is up in the stock market based on the 30 average moving above the 60, I will only look to buy when the stochastics are oversold (below buy line) and have turned back up. If the trend is down I will only look to short when the oscillator is overbought (above sell line) and has turned back down.

So now we have a way of determining the trend in the stock market as well as a way to time into trades. By combining moving averages with the stochastic oscillator, you will increase your odds of finding winning trades.

Over the last 11 years this approach has had 17 trades, 13 were winners and 4 trades would have lost money. This makes the accuracy of profitable trades to be around 76% which is very good. Keep in mind these are not small profitable moves but large winning trades as can be seen on the above chart.

If you were expecting to find the holy grail in this post, then I'm sorry to have disappointed you. On the other hand if you follow this simple system and combine it with money management, I think you will greatly shift the odds in your favor and will find much success trading the stock market.

Stocks Head Lower

Today was an awful day for stocks as many major indices and groups headed lower.

Above is a chart of the Q's which I am long. I marked off the support zone which coincides with previous lows and the 200 day moving average. If the Q's post 2 closes below this support area, I will exit my long trade at a loss.

Stock Market Forecast

Above is a weekly chart of the S&P500 and below that is an indicator called the S&P bullish Percent Index.

The Bullish Percent Index (BPI) is a popular market breadth indicator that is calculated by dividing the number of stocks in a given group (an exchange, an industry, etc.) that are currently trading with Point and Figure buy signals, by the total number of stocks in that group. Strong buy signals occur when the Bullish Percent Index falls below a low level and then reverses up by at least 6%. Conversely, promising sell signals occur when it goes above a high level, and then reverses down by at least 6%.

As you can see, the BPI has fallen to it's lowest level in years and is now rising which in my opinion is very bullish for stocks. I am long the NASDAQ because the NASDAQ has been showing relative strength compared to the S&P and the Dow. I think we'll see new highs for the year in the NASDAQ and the S&P.

Charts Of Interest

GLD has been in an uptrend and is now forming a symmetrical triangle...Watch for a breakout in either direction, but I would prefer to take a breakout to the upside not the downside.




Above is a chart of the XAU along with a proprietary indicator that I use. Notice how this indicator (red line) leads the XAU by about 2 months. Over the past year this indicator has been amazingly accurate in leading all the turning points in the XAU. If the accuracy of this indicator continues to perform as it did in the past, the XAU should now rally into mid January.



Above is another proprietary indicator that I use to forecast the U.S. Dollar. Notice how accurate this indicator (red line) has been over the past few years. If this leading indicator continues its accuracy, the dollar is in the process of establishing a significant bottom and should now rally into at least June of 2008!

***** CAUTION******
The above leading indicators can be very helpful but I caution all of you that other technical and fundamental tools should be used. Never trade based on just one piece of information. The above leading indicators can and do fall apart over time so stops and strict money management should be used at all times. Use common sense and always keep in mind that nobody knows what will happen in the future. NOBODY!

SOHU raises Q4 revs guidance above consensus

About a week ago I posted about reverse divergence and I used SOHU as an example because I actually bought that stock on that particular day. Since then the stock has been moving higher and the company just announced after hours that it is raising it's fourth quarter guidance.

After hours the stock is up about 2 dollars trading at 62.00. It would be nice if the stock can break out to a new year high which is at 63.53..We'll see what happens.

89 Week Moving Average In The S&P

One of my readers was kind enough to share with me the 89 week moving average in the S&P so I'm posting the above chart so you can see it as well.

Above is a weekly chart of the S&P 500 along with the 89 week moving average. As you can see, since 2004 all of the pullbacks have been contained by this moving average. About a week ago the S&P touched the average and rallied. My opinion is that the trend is up until the S&P posts several weekly closes BELOW this average, until then I think we have to remain BULLISH!

Keep An Eye On The Nasdaq

Lately the Dow and the S&P have been falling down rapidly but if you look at the NASDAQ you will see a different story..

Above is a line chart of the NASDAQ and the S&P. I don't usually use line charts (which are based on closing prices) but I wanted to show how the S&P got down to the close from last August. If I had used a bar chart you wouldn't have noticed this because of the spike low on that particular day in August.

Notice how the S&P tested the low from last summer while the NASDAQ is way above last summer's low. In my opinion this tells me that the NASDAQ is much stronger than the S&P and even the DOW (not shown). If you've been a reader of my blog for any length of time, you would know I always look to position myself in the strongest stocks and indices/groups. I never buy the laggards with the hopes that it will play catch up.

I'll be watching the NASDAQ in the days to come for a possible buying opportunity. If I do anything I will post it here the day I buy the Q's or short the QID's. Right now I'm just going to be patient and let the market do what it is going to do. If the NASDAQ breaks down from here, I will do nothing, but if I see the NASDAQ begin to rally a little bit more, I'll be all over it. I'm looking to buy strength not weakness. We'll see what happens.

Gold Stocks Looking Bullish

Above is a daily chart of the XAU index ( gold/silver stocks ). In the lower pane is the stochastic oscillator. You'll notice that the oscillator is in the buy zone which in my humble opinion means a buying opportunity. In the past whenever this oscillator was in the buy zone (stochs below 25) gold stocks would rally. This indicator isn't perfect but it does help to improve ones timing if looking to buy a pullback like we have now.

Another reason why I am bullish on gold stocks is because gold put in a strong day on Friday and is in an uptrend. The XAU index has also been showing relative strength compared to the stock market. I'm looking for the XAU index to make new highs for the year.. We'll see what happens.

Utility Stocks Breaking Out?

About a week ago I posted a few comments about my list of potential longs in the stock market. Since then many of the stocks on my list have broken their uptrend which means I won't be buying them, however there is one group of stocks on my list which is showing some bullishness.

Above is a daily chart of the Utility index and below that is the S&P. Notice how the S&P has been trending lower from October 22nd until now while the UTY index is trending higher. This tells me that money is moving into utility stocks. Also notice that the UTY index is very close to making a new 52 week high. I am long a few utility stocks as of today with the hopes that this index will bust through the year high...we'll see what happens.

Japanese Yen Holds Resistance

Above is a 3 1/2 year weekly chart of the Japanese Yen. A few days ago the Yen tested the high from last year and failed. You'll also notice the Yen has been making tops about every 8 or 9 months for the past few years and is now in the time window for a high.

It was tempting to short the Yen the other day at resistance but trying to pick a top is not a high probability trade so I did nothing.. I just wanted to share the above chart with all of you because it is something I'm watching..

A falling Yen might provide support for our stock market but that remains to be seen. As of now stocks seem to be weakening across the board which is causing me to remain on the sidelines. My reasons for looking to buy stocks are quickly evaporating!

Stocks Head South...NASDAQ Leading The Way

Stocks moved lower for the fourth consecutive day with NASDAQ stocks getting hit the hardest. If you look at the above chart, you will notice the ratio line ( NASDAQ vs S&P) is moving lower indicating that the NASDAQ is now much weaker than the S&P over the past several days.

A few days ago I posted some comments about how the NASDAQ was the strongest of the major indices but as you can see technology stocks are now being dragged down by the rest of the market.

As of now I have no position in the stock market and many of the strong stocks and groups that were on my potential buy list are rapidly disappearing as they too are being pulled down with the market. I'll remain on the sidelines for awhile.

Stock Market Comparative Analysis

Stocks got hit today across the board with many indices breaking some key levels. Whenever I see a market sell off within an overall long term uptrend, my view is that this could be a buying opportunity.

In the above chart are the three major indices ...the NASDAQ, Dow and the S&P. As you can see all three indices moved sharply lower today. If you look closely at the above chart, you will notice that the NASDAQ has been much stronger than the S&P and the Dow. For example, the NASDAQ is still above the July high while the Dow and S&P are clearly below their July high. Even on a shorter term basis the NASDAQ is stronger than the other two indices. The NASDAQ is above last month's low while the S&P and Dow are below last month's low. So in my opinion, the NASDAQ is where money "HAS" been moving into over the past few months.

What I'm looking to do is possibly buy NASDAQ stocks on this dip in the coming days or weeks if I see the NASDAQ show signs of strength. Yes, I'm aware that the Q's are down about .65 in after hours trading. I have no intention of buying anything tomorrow or the day after. I'm going to be patient and let this correction play itself out. What I'm looking to do is just make a list of indices and stocks that have been showing strength, and when I feel the time is right I will know exactly what to buy. In other words, I will be prepared!

Charts Of Interest

The US.Dollar continues to move lower which is helping many commodities such as gold and oil move higher.



EEM is much stronger than the S&P. If you look at the above chart, you will see that EEM is breaking out to new highs while the S&P has not made new highs. EEM, ILF and FXI are a few of the ETFs where money seems to be moving into.




Today gold and silver had a big move to the upside. Gold has been moving higher since August and I totally missed this entire rally. If you recall I have been very bullish on gold since last summer but unfortunately I was involved in a few other projects which caused me to miss being long this metal..Oh well...@&$#(!!@#%^#%




Those of you who follow Dow Theory might find the above chart of interest. Recently the S&P made a new high while the transportation index did not. According to dow theory that is bearish for the market and the market should trend lower. Keep in mind about a year ago there was a dow theory sell signal which failed to produce a sell off. I'm personally not trading based on the above chart..I just wanted to post this chart here because some of you might find it of value..

Stocks Tumble on Black Monday Anniversary

Stocks got hit today on the 20th Anniversary of Black Monday. As you know I've been short the mortgage related stocks from about 2 weeks ago. I covered half the position a few days ago (a little bit too early) and I covered 25% more today at the close.

You'll notice the S&P is approaching its 50 day moving average and it is possible that we may see a bounce in the market so I decided to take some money off the table by covering about 25% of my short position in the mortgage related stocks.

Below is a chart of the MFX index. You can see how far these stocks have dropped since I first wrote about them on October 10th . One thing I love about shorting is that when stocks fall, they move rapidly and the profits are large and fast... gotta love it!!

Covering Some Shorts Here

As you know I've been short a few of the mortgage related stocks. In the above chart you can see that the MFX index has made new lows for the year..

I exited half of my position today near the close because the index has moved lower 8 days in a row...I figured this is a good place to take some money off the table..I'm using the MFX chart to manage my individual short stock positions. I'm still holding about 50% of my short position and I will use a trailing stop. I will exit the balance of my short position if the MFX index moves above 77.