Big Momentum Day

Gold is Down and the Market is Up

I'm selling most of the rest of the AEM, ABX, GG, and FCX right now. Big, big profits on those puts. I dumped the last of my Energy puts at breakeven. I'll dump the last of every put here soon. I'm also looking at going calls on my bullish list and the market ETF's. I'm waiting on the ISM, which comes out in 15m at 10am ET before I do. I will clean this post up as the day goes along, but I wanted to get the info out right away as I was paper trading.

I was checking some of the bullish stocks and a couple of them have bang banged too hard, I'm looking more at the market ETF's right now, maybe PRU, AIG and some others. I will go through my list after the ISM announces in 5 minutes.

Looks like the ISM just checked in at 48.6, which puts it a little more towards the end of the spectrum that could keep our short term bounce alive. I'm going fishing for calls right now, but I won't open the barn doors on this and I will only chase these gaps this morning a little, I want some pullbacks too. Watch for a bull flag on the 15m on the Dow. I want this to show me that it's going to hold and not just be short covering.

I'm out of almost all my puts, but I kept a little of ABX, AEM, and GG, about 15% of those puts just in case they make lower lows.

Watch this now, I think we're going to get an Advance Block on the 15m charts on the Dow right now. So this is the pullback I'm looking for. I want to see how this holds up.

We didn't get the Advance Block so I nibbled on PRU and AIG. I'm also looking at AXP and COF in Financials, some of the REIT's like PSA, EQR, GGP, and others, and index ETF's, especially the DIA, SPY, and Q's, not so much the IWM. But I'm waiting for a pullback on the 15m charts before I add. This is all I have time for now, the phones are picking up around here (which is pretty predictable with a market bounce).

Throw the REIT's out, you can't get good spreads on any of them, the only one that is even close is EQR. So far today I have nibbled (half-positions) on PRU, AIG, AXP (in a 15m Flag right now), and COF (in a 15m Flag right now). I don't want any Retail, too much risk there still, although NKE, SHLD, and AMZN are looking pretty good. GILD moved too far. I'm floating a couple of nibblers on the DIA and SPY in case they pull back. I may do the same on the Q's. This last little thrust on the 15m charts on the Dow smells like it's ripe for a double move, I'm not buying into it. If it does pull back to 124.50 - 125.00 I will start my nibbling there.

I'm still waiting on the DIA and SPY calls, if I get in the 125.75 area or better on the DIA, and the 135.50 area on the SPY then I'll get a half-sized position. I have full-sized call positions now on AIG, PRU, COF, and AXP.

I never did get the DIA and SPY calls but I have four other nice positions. If we wiggle a little out of the gate tomorrow morning I'll hit those for full sized positions and look for 12,750 on the Dow by the end of the day. Today was a Flash day (my term), and tomorrow may be the Bang day (again my term) that finishes it off to 12,750 (which is horizontal and channel resistance). Flash Bang, think of lightning followed by thunder. Lightning is shocking, powerful, and flashes in an instant. Thunder follows up with a rumble and more power, but not quite the same sharp power or energy. Flash Bang. So today was the Flash, tomorrow may be the Bang to 12,750. One of the hardest things to do as a trader is discern when you have a Swing Day and when you have a Momentum Day (or Flash Day). Swings are when you buy pullbacks, Momentums are where you chase it, you buy high to sell higher. Linda Raschke and many other veteran traders will tell you that being able to switch gears between swing buying and momentum buying can be the difference between making money and getting hammered. Many pit traders swing all month and then short into a momentum day only to give it all back because the market never comes back. That's why I started chasing in the middle of the day, I smelled momentum.

As far as the catalyst, I don't want to spend a lot of time writing this up, but here's a quick description. First, we were at a critical tipping point - at support - which I pointed out yesterday. We got more write-downs out of UBS, and we had LEH scrambling to raise money to take care of their own write-downs. The market shook it off, and even took a glass is half full approach to the Financials instead of the glass is half empty. In addition, this is the first day of the month and the new quarter, which meant some Mutual Funds may have been wanting to put new money to work. Nothing like the January effect, but a catalyst nevertheless. As soon as I saw the market clearing yesterday's high, I knew it could be confirming the bounce. Then the ISM hit and off it went for the rest of the day. Professional traders wanted to take things a certain way today, and when it looked like the Financial Sector and the ISM wouldn't kill the bounce they were manufacturing, then it was clear skies for the rest of the way. You can see this forming up for a Bang tomorrow - right to resistance. Then we may get a Doji day on Thursday as traders put their hands in their pockets and wait on the big Grandaddy economic report coming Friday - the Employment Report. So, if the Jobs Report strongly beats expectations then the market will probably break resistance. If the Jobs Report strongly misses expectations then the market will probably fall back to the lower end of the channel. I will put up a chart of the Dow later so you can see what I'm talking about.

Here is the Daily chart on the Dow, with the resistance lines and price target:
(click on image to enlarge)

If we get wiggle out of the gate tomorrow, I may add some more calls for the Bang (if we get it), we shall see.....

Chicago PMI and the Market

The Chicago PMI came in at a better than expected 48.2 this morning. Overall the report was fairly decent given the expectations. I dumped a couple of the Energy puts early on, but kept all the rest of the puts, especially the Gold puts. I watched to see how bold the traders would be with the Chicago PMI, but so far all we've gotten is a bear flag on the 60m charts on the Dow. So I re-entered the Energy puts that I dumped and I'm riding the Gold puts hard. I will look to lock some down in the last hour since a lot of the window dressing will happen in the last 15-30m of the day. So far, a great day to be in Gold puts.

Evening Post:

Well.....it turns out I was off by one point on my Chicago PMI prediction. I thought 46-47 was going to be the sit-and-spin zone and it turns out 46-48 was the magical area. After watching the muted reaction and reading reports that traders liked the number, but would have liked it better if it was closer to 50.....you get the picture. You really can't say much about the Dow, Naz, or SPX as far as the short term swing. We are at one near-term support and not doing much. I think that whether or not we hold support has a good chance of coming down to the bigger, badder, bolder ISM Index number tomorrow. A good reading, which probably means 49-50 or higher, is likely to give us a bounce at this support area in the near-term channel that we are in. A bad reading, which probably means 46-47 or lower, is likely to cause the markets to break this short-term support area.

We just didn't do all that much in the markets today, although the window dressing hit right on cue in the last 30 minutes, and right in the areas you would expect, like Energy. I actually nibbled back in to some Energy puts right before the close since we didn't make a higher high. I took out most of my Gold puts for a great profit before the last hour when I knew the window dressing might hit (that I warned you of in the early-day post). I lost a little on some Energy put stops right out of the gate this morning, but I'm well ahead on the week because of the JCP, MHP, GG, AEM, and ABX puts. I think this is all going to come down to the ISM tomorrow morning. The market wants more of an all clear signal before it bounces short-term. I wanted to pick up NKE, GILD, PRU, and EQR calls today (all gave confirmed bounces), but with the ISM sitting there, I just decided to wait until I see how the market handles things tomorrow. I'm not sure if we get the bounce tomorrow or not until I see the ISM and I see the market react positively. I'm ready to dump what's left of my puts tomorrow morning and go to calls if that's the way it plays out.

We'll see what tomorrow brings.....

Here is a test of our new recorder.

Bearish Candlestick Patterns

Here is a list of Key Bearish Candlestick Reversal Patterns with Variants:

Bearish Engulfing and Variants
(click on image to enlarge)

Evening Star and Variants

(click on image to enlarge)Shooting Star and Hanging Man
(click on image to enlarge)

Bearish Harami and Variants
(click on image to enlarge)

These Candlestick Patterns occur frequently enough to be useful. They also have higher probabilities of success when combined with certain other technical indicators.

Watchlist Saturday

Here is my watchlist for the upcoming week.

Bullish and Semi-Bullish:

Steel: X, STLD, NUE
Metals/Mining: ANR, CLF
Energy: MUR, APA, DVN
Railroads: CSX
Materials/Construction/Manufacturing: MDR, CAT
REIT's: GGP, PSA, PLD
Financials: PRU, MS, FNM, FRE
Tech/Services: RIMM, ERTS, AAPL, FSLR, ADP, IBM
Electronics: TYC
Biotechs: GILD
Retail: NKE, WMT
Food & Beverage: K, GIS, PEP, KO (none of these are very big movers)

Bearish and Semi-Bearish:

Gold: NEM, GDX, ABX, AEM, GG
Energy: VLO, NOV, OXY, SU, DO, MRO, CHK (may be forming H/S), USO (may be forming Double Top), CNQ, APC
Coal: ACI
Retail: JCP, KSS, ANF
Financials: AIG, LEH, LM, MER
HMO's: AET, HUM
Utilities: PEG, NRG
Note: UTX, MCK, NVT, DBA, FCX, PCU

The Market continues to chop and churn as traders battle over whether we are recessionary, inflationary, or just right. If Goldilocks doesn't get a Prince Charming on Monday or Tuesday with the Chicago PMI and the ISM, then the Three Bears may take over. We have some critical divergences happening inside of individual Industry Groups let alone sectors. You will see from the Watchlist that there are bullish and bearish stocks that are living right next door to each other in the exact same neighborhood. The current market conditions may be shoring up a bit from January and February, but we still have enough uncertainty to slosh this thing back and forth until we get to the April Earnings Season.

With the kind of conditions we have experienced since January, and with Mutual Funds on the verge of posting their worst quarter in exactly 5 years, you should take a moment and reflect. For those of you who have been following me over the past several months - and have been making even a little money - think about what you have accomplished! There are a lot, and I mean a lot of trades who have lost money, and even a lot of money in the past 3 months. I have demonstrated to you how to navigate successfully through the choppiest, worst market in 5 years. I have shown my own paper trades to you on a regular basis, and you can see for yourselves my hit rate (wins vs. losses) and profitability. No smoke, no mirrors, no slight of hand, I have put everything right there in front of you. And I have to tell you, I get a tremendous satisfaction when I hear about your profitable trades. But I get even more satisfaction knowing that you're doing it in the absolute worst of times.

Reluctant Market That Might Fade

The market seems to be reluctant to buy or sell. The economic reports this morning were somewhat of a non-issue, just as I thought they would be. Oppenheimer and Meredith Whitney continue to pound on Financials, and JCP pounded on itself - which was great for me since I had puts. As always, I sold half the JCP puts when it was down in the 36.50 area (it did hit 35 out of the gate, but only for a nano-second before it bounced). This is the beginning of earnings warning season, and ORCL and JCP, along with Oppenheimer are setting a tone that earnings won't be spectacularly good. The market isn't ready to throw in the towel just yet and roll over, though, because we have the two biggest economic reports of the month next week and we still have a lot of other companies to get guidance from. The market does look like it's going to fade into the close, so I will ride my puts right into the close before I scale out of any more.

Evening Post: I did sell half the AEM puts for a 1.03 gain as well as half the JCP puts (mentioned above) for a 3.10 gain (78% return in 2 days).

Monday is going to be all about the End of the Quarter and the Chicago PMI and how those two things either harmonize or clash. Normally I don't pay a lot of attention to the Chicago PMI, but because of the current conditions and the timing, it could be a real market mover. A reading of 45 or lower is probably going to start some serious selling early in the day and send the Mutual Fund Managers screaming into the woods to find some hemlock bark to chew on while they mutter and snarl and walk around in circles counter-clockwise. A reading of 48 or higher will give the Fundees a natural high early on that could lead to so much "window dressing" that we might have to duct tape bowling balls to their ankles so they don't float away. I reading between 46-47 and the market probably chops a little and waits on the more important ISM Report on Tuesday. The Chicago PMI come out 15m after the open on Monday. So here's how I'm playing it: 46-47 and I nibble out of 3/4 of my puts, 45 or lower and I ride the puts hard and take out half of everything by the end of the day, and 48 or higher and I probably stop out of just about everything and start nibbling on calls - and load up on more calls if we get a strong ISM on Tuesday.

Here is some interesting reading if your bored:

This is an article on the Fed getting more power to monitor and control outrageous speculation in various industries of the economy. Two things about this.....One is that America continues to be the safest economy in the world to invest in because we have outstanding oversight, while at the same time maintaining a certain amount of restraint to allow capitalism to flourish. Sometimes we go too far, sometimes we're not perfect, but all in all, a darn good system. The second thing is that while it's a noble effort to try and control greed and speculation, it's a little like trying to catch Niagra Falls with a thimble, there's only so much you can do.....Fortunately, market corrections usually do the trick, that's why they are called corrections. So again, the combination of good oversight and allowing free markets to work is what makes American markets the safest in the world. Here is the link:

http://www.nytimes.com/2008/03/29/business/29regulate.html?ei=5065&en=7ba12b1b93b17830&ex=1207368000&partner=MYWAY&pagewanted=print

Remember how I have spoken about the concept of "rumoring the market" and manipulation. Here is an example of how that plays out. Two things about this.....One is that, fortunately this doesn't happen all the time. And because of the way I trade very short term in uncertain market conditions, I usually don't get affected much by this stuff. The second thing is that this is exactly why I tend to stay away from sectors and stocks when they get too "newsy." Here is the link:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPyQ_7G9wJ2M&refer=home

I will continue with a weekend watchlist tomorrow.

Stocks Running Out of Gas

The Energy and Commodities Sectors have had a good deal of short term buying and short covering the past four trading days, but it looks like those sectors are running out of gas. Tech is dropping on the ORCL earnings, and Financials are getting squishy because of the large put positions traders see building in that sector right now - and the continued earnings downgrades hitting the sector.
I added to my paper puts on OXY. I was thinking of doing the same with FCX, but I was already in some puts right close to where we are now anyway. This really looks poised for a pullback in Energy and Commodities. As always, I don't have a crystal ball, so that's why I have stops. But I am very comfortable with my put positions from yesterday, and the added positions from this morning.
I don't know if I will be able to do a follow-up post later today since I work until 9pm, and get home later than that. I'm still trying to figure out how to handle Thursday and Friday nights for now.....until things change.....

Just a quick late day note. The markets finished down, and so did Energy. Now, the Energy thing is significant because oil ran up 1.30+ today to close above 107 - and yet most Energy stocks finished down. So Energy, Gold, Commodities, Financials, Tech, some Retail, and some other areas all went down or are looking to roll over. I'm not looking for a huge downswing, so another drop tomorrow and I will be out of around 1/3 to 1/2 my puts depending on conditions. I liked the Gold puts so much I added to them with an ABX put today. I don't expect a lot of focus on the Economic Reports tomorrow, although the "fad" report will be Consumer Spending (even though I don't think it will mean much unless it comes in way outside the estimates). The big focus is Earnings Warning Season is starting, the ISM on Tuesday, the Jobs Report on Friday, and Earnings Season in the middle of April. The market is looking for clues on a possible "recession." The market is also still trying to decide if we are done with the worst of the Financials mess, which looks like about a 60/40 proposition right now. By that I mean it looks like a 60% chance we are done with the worst of it, and the further along we go without catastrophes, the higher the odds. There are some Financials that are even looking bullish, like FNM, FRE, and MS.

We'll see what tomorrow brings.....

Evening Star Forming

The economic reports came in mixed today. New Home Sales and the Oil Inventory reports both came in slightly better than expected. Those numbers were offset and then some by the Durable Orders coming in weaker than expected and a downgrade on the banks by Oppenheimer. I speculated that the Durable Orders would trump everything else today, and it did, by a slight margin. Commodities and Energy had a bounce continuation today, with Energy leading the way. Despite the bounce, Gold and other commodity stocks may roll over at a lower high, which is why I'm playing puts on those stocks. Energy may make a little more noise than that, but I'm speculating that a couple of the energy stocks will roll over at lower highs. With Financials (Brokers, Banks, Insurance) tipping over, and Housing rolling over despite the positive New Home Sales report, it was up to Energy and Commodities to hold up the market. If we get a bad Initial Claims report tomorrow then the market could roll down another day. GDP and the Chain Deflator will effect the markets as well, although GDP should be mostly baked in to the market already. We have an Evening Star on the SPY, but all the major indexes basically experienced normal consolidation today. It's still a little iffy on a drop tomorrow, but I'm picking up puts now in case we do roll down tomorrow, especially on stocks that just made lower lows.

I dumped the DIA, SPY, Q's, and IWM calls right out of the gate this morning. They were all half-sized positions so there was very little damage there. I made 11 cents on the Q's, lost 15 cents on the IWM, lost 45 cents on the DIA, and lost 50 cents on the SPY. I also finished off PEP for a small gain of 19 cents ($190), CAH for a gain of 37 cents, and MCK for a gain of $1.07. So a net positive on all the trades in the past few days. That's what I want, even in the choppier times I want to manage as much stuff to profitability as I can, and do it as consistently as possible. I don't want to take a lot of losses in a row, or really big losses. Then when I get the bigger winners it really adds up.

I picked up puts on GG and AEM in Gold, FCX in Copper, OXY and EOG in Energy - although I swapped out the EOG for NOV, which I like a lot better (SU also looks very nice), JCP in Retail, and MHP in Media. A lot of stocks and areas rolled over a bit, like Brokers, Banks, Insurance, Housing, some Retail, and Airlines. Energy and Gas were, by far, the most bullish performers, with other Commodity stocks just behind. It looks like Energy and Chemicals (although DBA in Agriculture looks like a good put) are the strongest sectors right now, so I don't want to get too fancy with my 2 Energy puts, just get a little and get out.
Also noteworthy rollovers: PFG, SYK (although it may only go down $2), BDX, SUN, and AIG.

The most Bullish stocks right now are:
Energy: APA, SLB, DVN, WFT, RRC, MUR, XTO
Metals/Mining: CLF
Steel: MT
Chemicals: MON
Manufacturing/Machinery: CAT
Biotechs: DNA, GILD, CELG
Tech: AAPL, RIMM, ADBE, FSLR, IBM
Electronics: TYC
Retail: TIF, WMT, GME, NKE
Food & Beverage: KO, PEP
Railroads: CSX
REITS: PLD, PSA, AVB, GGP, EQR
Financials: MS

The Bullish list of stocks are what I don't want to be playing puts on. In fact, if the market takes off again in the next couple of days, I will look at calls on some of those stocks.

Tomorrow will bring what it will, so I am ready for both directions, and I'm positioned how I want to be in case we do drop for the day. We shall see.....