After a couple of months of not writing on this board, I am back with some considerations about the health of the market. Clearly the last 10 days have shown a pretty negative price/action. The market is in a correction right now. Up days have shown no volume and down days pointed at heavy institutional selling. But a correction in the last part of January is anything but a surprise.
The last two weeks in Decmebr and the first two in January are usually good for the market and then there is a small correction. So far we have corrected 80 points on the S&P as of the lows of January 29th. Yesterday has been an up day without volume but today is shaping to be the best day in two weeks: we are moving up and turnover is higher as well.
If the day doesn’t turn upside down, this could be the beginning of a new rally. Too soon to say for sure, but price/action is what counts the most.
TechnicalTrader Market Direction correction, January
Here we are, October 25th with two weeks of earnings reports in the bag. Many better than expected. 62% of companies are beating not only on EPS but on Revenue as well. Beating on EPS estimates can be done on cost cutting, but beating on revenue reflects an increase in business volume.
Even with all these good news the market traded in a range all of last week. We have not been able to pass S&P 1,100 and we are dancing around the DOW 10,000 level. Best of breed stocks have outperformed the market, a very good sign. By looking at price and volume charts of the major indices, it is possible to notice several days of institutional selling in recent weeks. Some of them however have occurred after a holiday, on option expiration day or were simply caused by monster volume in a few key stocks after the release of their earnings (look at Friday sell-off on the Nasdaq with high volume mainly due to MSFT). My point is that institutions are selling less than it appears.
We are now pretty confident that many businesses are doing well and the market always looks 6 months ahead. Money managers will buy any dip in the stock market and I would be shocked to see any correction larger than 5%. My advise is to continue to be long. On a technical side, if we break S&P 1,100 we go to 1,150 in no time.
LFT continues to outperform the market and this week showed some pretty good accumulation.
This week closing price was the highest in a year. LFT is only 6.5% below its 52-week high and I expect this stock to break-out ahead of its earning release on November 16%.
TechnicalTrader Market Direction breakout, GS, LFT, S&P 1100
Earnings from many benchmark companies are coming in better than expected. Tonight Apple and Texas Instruments reported numbers well above expectations, setting-up the major indices for a rally tomorrow. This market is moving higher even though volume is a little bit on the light side, a warning sign. However, I wouldn’t dare fighting the tape as it looks like we could easily move 5% or 6% higher from here. If money managers start chasing the market, we could go straight up as there is no much time left in the calendar year.
I am continuing to hold GS calls. The stock was neck to neck with AAPL in the race to the $200 mark. AAPL set a new all-time high in after-hours trading today above $204. I can see GS continuing to trade to the upside after reporting great earnings last week.
LFT is maintaining the $30 level. There is no much resistance left in the stock as the $32.94 high set a few months ago is the last target to reach. If the market continues to move higher, LFT will almost certainly take out that level. I am planning on holding my position until then and if I see a breakout above $33.04 in healthy volume I will hold even a little longer.
TechnicalTrader Market Direction aapl, breakout, celg, GS, LFT, texas instruments
A market correction becomes obvious when leaders start to break down. It is very normal to see stocks of bad companies taking huge hits when the market corrects; good stocks however tend to be more resilient and ultimately they are the ones that can keep an uptrend going. Look at Apple and Goldman Sachs for example. In a very bad tape this week where the S&P closed down 20 points or almost 2%, AAPL managed to log in a gain of $2.50 and GS managed to close pretty much unchanged at +$0.11. These are some of the leaders of this market. When they roll over, everything else follows.
Today’s action was pretty encouraging. We declined on lower volume and we also bounced back from the key support level @ the 50-day moving average. My point is that considering that market leaders are acting well, key technical support levels are holding and selling pressure does not point towards heavy institutional selling, I believe that this uptrend has still legs and it could resume as early as next week.
As always, I can only make a prediction based upon facts, therefore if the market starts behaving differently than what I believe, I shall be the first to change my strategy.
Have a good weekend everyone and best of luck with your trading.
TechnicalTrader Market Direction, Trading Ideas aapl, correction, correction 50 day moving average, gs. leaders, key supoort level
The market is behaving poorly lately. We declined 6 times out of the last 7 trading sessions. What do we make of such action?
Let’s start with the facts: if we observe the price/volume action of the last two weeks, we can clearly see at least some institutional selling in the market. Some leaders have been outperforming the major indices however when the market goes down, 75% of stocks will follow. The current uptrend is therefore under pressure. Technically speaking the market made a bearish reversal on 9/23 and the only up day in the last few trading sessions occurred in very soft volume. Now we are quickly approaching the 50-day moving average and also a key area of support around 1,020 in the S&P. If we hold, there is a good chance of a bounce; if we go through, I would recommend to close most of your positions as we can easily drop to 1,000.
Currently, I haven’t taken any action. I am really waiting to see what happens tomorrow. I would be encouraged to see signs of institutional buying in the case we trade to the upside. No buying conviction would be reason to sell into strength.
My current position in GS is still well in the green. GS has been trading very well lately but today was a bad day for the stock even if volume on the downside was contained. Technically speaking GS reversed from $188 to below $180, rallied back to around $186 and today dropped again below $180. It is now $0.51 below last’s week closing price. It looks like a mini double top pattern at this point and if GS closes below the recent low of $177.70 I am out of this trade.
Also CTRP has been trading well in this last market correction and it is only slightly below last’s week closing price at $57.17. Today’s decline came in volume 40% below average, a sign that the stock was only being sold by retail investors. When institutions are not dumping a stock, there might be a much greater upside potential if the market starts trending higher.
Summing up both of my holdings are outperforming the market this week but any sign of further weakness is a good reason to cash out.
TechnicalTrader Market Direction correction, ctrp, Goldman Sachs, GS, october, support
Last week the market suffered two days of professional selling which raised the question: are we due for a pull-back? Though to say. By keeping an eye on the market we can tell if it is time to hedge long positions or to add to our existing trades. Yesterday we gained almost 2% in lower volume.
Two weeks ago I closed my Visa trade because the breakout was working on low volume, a sign of weakness. In fact the stock sold off in the next few days and is trading now around $71, below its buy point.
Goldman Sachs hit a 52-week high of $188 last week and then reversed lower to close at $179.50, not a good sign. Volume was unimpressive however. Today GS is back around $183 and if the market doesn’t start a correction I will continue to be long GS calls for the time being.
CTRP briefly dipped below its buy point last week without a significant correction however. This week the stock is charging higher in healthy volume, a sign that institutions are fueling this breakout. Resistance area for CTRP is the May 2008 absolute high around $70. I expect CTRP to test that level in the coming weeks. It is still not too late to jump into this trade.
TechnicalTrader Market Direction, My recent trades, Trading Ideas breakout, ctrp, GS, profit, V
Today the major indices reached new highs for the year and closed higher in good volume. The Nasdaq outperformed once again the DOW and S&P. The market health is improving with some fairly old distribution days losing relevance as time goes by. Today I closed my position in RHT however given the somewhat lukewarm fundamentals of the company. The stock broke out of a consolidation at $23.82 just a few days ago and I decided to take small profits today at the $25 level given the lack of conviction in upside trading.
On the other hand I initiated a position in Goldman Sachs based on the impressive volume on the upside in the last 20 minutes of trading. I am playing the stock with naked calls at the October $140 strike. Goldman sliced through the $170 level which previously in the day acted as resistance. I will closely watch the stock tomorrow to see if it faces any additional resistance at the high of the seven weeks consolidation @ $170.94.
Given the exposure that call options provide, I will be very fast at closing this trade if Goldman Sachs falls more than 1% from my purchase price. That will translate in a 5% loss on the options trade. If the market trades well tomorrow and GS breaks through the $171 level, then I see no reason for closing the trade anytime soon.
TechnicalTrader Market Direction, My recent trades, Trading Ideas distribution days, fundamentals, Goldman Sachs, GS, market uptrend, Red Hat, RHT, trade
The market has been sending mixed signals over the last couple of weeks. Weakness is in the air and any new buys should be done very carefully with tight stops. Of the two buy recommendations that I made last week, RHT did brake above resistance at $23.72 and I did initiate a small position in the stock. My loss tolerance in this case is going to be less than 4%.
Expect the market to trade mixed in the next few days, a little bit up and a little bit down. Signs of weakness indicate that we have a good chance of a small correction coming. I doubt that the major indices will drop like a rock, however we can expect a 10%-15% pullback which is going to be a great buying opportunity for what I believe is going to be an end of the year rally in November-December. Of course I can be wrong, so I shall update the market outlook as we move forward.
Now I believe is a great time to raise cash and add cash to the trading account if possible. A new good buying opportunity will present itself soon and you don’t want to be left out.
One possible trading recommendation for next week, in addition to RHT which is now in buying range, is the best of breed Goldman Sachs. The stock has been trading in a tight range over the last 7 weeks building a flat base. If the stock breaks above the high in the base $170.94 in good volume, then I would buy. GS is not a small cap growth stock, so the risk is going to be fairly low and the move up is not going to be violent.
TechnicalTrader Market Direction, My recent trades, Trading Ideas correction, GS, RHT, sideways
Unfortunately nobody knows where the market will go next. However we can read the daily signs that the major indices send us. Yesterday was a clear distribution day, we dropped in high volume and pretty much every sector sold off. The most likely outcome of the current market trend is a re-test of the 975-980 level in the S&P. If that doesn’t hold, we might be headed to 900. Even with a 140 points retracement in the S&P, we would not be close to the 20% level that in most people opinion is the beginning of a new bear market.
Actions to take:
If you are invested in mutual funds for your retirement just sit back and relax. Continue to make your regular contributions and avoid listening to market’s noise.
If you are a trader, I strongly advise to raise cash if you haven’t done so yet. If you missed selling some bad performing stocks because you didn’t want to accept to be wrong or just because you are hoping that they will recover, do it now. You can always buy them cheaper in later times if you think the market is headed down. Think this way: would you buy again the stocks you own at their current level? If you answer is no, then sell them immediately. A loss occurs when the stock drops in price from your initial buy point, not when you close your position. You most likely already have losses in your portfolio.
TechnicalTrader Market Direction losses, mutual funds, sell off
It doesn’t take a genius to understand that this was a bad day for the stock market. At the opening we had to face a 6.7% decline in China and we knew that most if not all asian ADR’s were going to be under pressure. Neverthless, we managed to close well above session lows. Unfortunately, both S&P and DOW Jones Industrial declined in increased volume, a sign that institutional investors were selling stocks. The Nasdaq however declined on lower volume confirming its leadership and resilience in this current bull market cycle. Small caps stocks have led the rebound in these last few months, but many big blue chips names have been laggards so far. If we are to see the major indices continue to move higher, we need stocks in the DJIA and S&P to show strength and play catch-up with the tech index.
Today’s action could very well mark the first sign of a correction coming. In the last few weeks the major indices have suffered several distribution days. This week will most certainly make or break this uptrend. The one event that could really change the current outlook is the August employment report on Friday. If it is better than expected, than we will most likely have a big move up. The contrary is true if data comes in weaker than expected.
TechnicalTrader Market Direction Distribution, DJIA, Nasdaq, S&P, unemployment