Summer Doldrums are Back!

Today’s price action exhibited the typical low-volume trading that we are accustomed to seeing during the summer months. Coming of one of the best weeks of the year a consolidation Monday is too be expected. Today’s action would normally be seen as a positive day as the market basically finished the day by only giving up fraction of last week’s advance, however, the market is currently exhibiting some bearish tendencies that should be noted. For one, the S&P (SPY) and Dow (DIA) are still overbought while the tech-heavy Nasdaq 100 (QQQQ) and Russell (IWM) are quickly approaching that status. Tomorrow is the first day of the month and historically, a bullish seasonal day. Suprisingly though the first day of August is historically a flat day.  If we do indeed test the 1280 mark I have mentioned over the past few days it is my opinion that we could have a tough time moving through and holding this level. The reason I state this is because a move through the 1280 would bring the S&P (and most likely the Dow) into “very overbought” territory which normally does not bode well for sustainable moves to the upside over the short-term. Like I said it is only my opinion so take it for what it is worth. Another bearish indicator is the 5 straight days of higher highs on the S&P, which recently has been fairly bearish going forward, at least for the short-term. Furthermore, the second and third trading days of August have showed a slight bearishness historically. As I always state seasonality, in most cases, should never be the only reason to place a trade. But, if we take the seasonal tendencies and couple them with the current state of the market the combinition increases the probability of a successful short to intermediate-term trade. If we look at the current market and its overbought state coupled with the seasonal weakness that lies ahead.. well..I think we can put two and two together and come up with some possible short-term opportunities.  Have a great night!

RSI Wilder (5) for July 31, 2006

• SPY – 72.3 (overbought)
• DIA – 71.0 (overbought)
• QQQQ – 65.7 (neutral)
• IWM – 61.9 (neutral)

 

The market closes at an important juncture

I would like to reiterate what I stated yesterday in the blog as our feed was temporarily disabled. If you happened to read yesterday’s post we apologize for the inconvenience and you should probably skip to the new information. We stated the following yesterday: After several months without a signal we resumed our profitable ways in the ETF Extremes strategy. We made 13.3% on the trade in just over a week and are now up 23.9% YTD. We have stated several times over the past few months that we were not going to be pressured into a trade in our ETF Extremes strategy. Patience and discipline are the key ingredients to the success of this strategy and forcing a trade is, in most cases, detrimental to any strategy. Our exact words on the website: “This strategy requires patience coupled with a disciplined approach. The strategy will make approximately, on average 1 to 3 recommendations a month with holding periods of 1 to 15 days, however, there will be some months when no recommendations are made. The key to this strategy is patience. Waiting for the appropriate scenario to recommend trades with a high probability of success is what makes this strategy a success.” After several months without a signal many of you seemed impatient. Believe me, we would love to have potentially profitable signals on a daily basis, but that just isn’t reasonable with this strategy. We will never make apologies for our system and why should we, with a win ratio of 100% YTD and gains of 23.9% YTD we feel confident in the strategy and its ability to produce long-term returns. While we were sitting on the sidelines for the last few months the market was experiencing an absolutely horrible 2nd quarter. It goes to show that sometimes sitting on the sidelines is the best trade.

Now lets move on to today’s commentary. The market (S&P) closed right below 1280 today. I have mentioned over the last few days how 1280 is an important resistance level and should give us a clue as to where the market is headed over the intermediate-term. If the S&P can move above this level and hold this should increase bullish sentiment going forward. However, this will not be an easy task as there are a few troubling hurdles that the market must overcome to continue this rally. First, the S&P and Dow are officially in an overbought state and moving ever so closer to very overbought. In most cases this is a signal that a short-term decline is not far off especially if we make it to very overbought. Another is the tech-heeavy QQQQ and IWM. Normally, both will lead the charge in a bullish market and this just hasn’t been the case over the last few weeks. If the market happens to move sharply upward Monday we should expect to see at least a pause going into mid-week. The beginning of the week is seasonally bullish so this would not be out of the ordinary. Although, given the current overbought status of the market I am a little hesitant about the sustainability of any move upwards at this juncture. So, going back to what I stated earlier, keep a close eye Monday on how the market reacts to the 1280 level of the S&P. This should give us some much needed insight for the weeks ahead. Take care and have a wonderful weekend.

RSI Wilder (5) for July 28, 2006

• SPY – 75.2 (overbought)
• DIA – 75.9 (overbought)
• IWM – 61.9 (neutral)
• QQQQ – 66.0 (neutral)

 

Is the rally over?

 

After several months without a signal we resumed our profitable ways in the ETF Extremes strategy. We made 13.3% on the trade in just over a week and are now up 23.9% YTD. We have stated several times over the past few months that we were not going to be pressured into a trade in our ETF Extremes strategy. Patience and discipline are the key ingredients to the success of this strategy and forcing a trade is, in most cases, detrimental to any strategy. Our exact words on the website: “This strategy requires patience coupled with a disciplined approach. The strategy will make approximately, on average 1 to 3 recommendations a month with holding periods of 1 to 15 days, however, there will be some months when no recommendations are made. The key to this strategy is patience. Waiting for the appropriate scenario to recommend trades with a high probability of success is what makes this strategy a success.”

After several months without a signal many of you seemed impatient. Believe me, we would love to have potentially profitable signals on a daily basis, but that just isn’t reasonable with this strategy. We will never make apologies for our system and why should we, with a win ratio of 100% YTD and gains of 23.9% YTD we feel confident in the strategy and its ability to produce long-term returns. While we were sitting on the sidelines for the last few months the market was experiencing an absolutely horrible 2nd quarter. It goes to show that sometimes sitting on the sidelines is the best trade.

After a nice short-term rally over the past week the market (with the exception of DIA) pushed lower today as the maket lost steam with several failed attempts at moving thorugh key resistance levels. I mentioned yesterday that a troubling aspect of this rally is the lagging tech-heavy QQQQ. The Nasdaq 100, which usually leads the charge in a sustainable move up/down has been running in place while the rest of the market has climbed upward. I also stated my hesitation, at least over the short-term, going forward and how we could tarde around support levels before resuming any type of directional move. The key level is at 1260 for the S&P. If we can hold here I think a resumption of the move higher looks highly probable. We are entering a seasonally bullish period (end of July/beginning of August) so if we do move lower tomorrow look for a decent bounce early next week.

RSI Wilder (5) for July 27, 2006

• SPY – 64.8 (neutral)
• DIA – 68.5 (neutral)
• IWM – 45.2 (neutral)
• QQQQ – 45.5 (neutral)

Marginal Decline

After two days to the upside and moving ever so closer to an overbought state the market took a pause today. If the market is to move higher and stay there, we should expect to see days like today. SPY tested the 1260 support area that I mentioned yesterday and bounced nicely off that level early in the trading day. This is certainly a positive for the market going forward. The one troubling aspect of this rally is the lagging tech-heavy QQQQ. The Nasdaq 100, which usually leads the charge in a sustainable move up/down has been running in place while the rest of the market has climbed upward. If we are to see a continuation of this rally then we need to see buyers show some conviction in the riskier sectors. Admittedly, I am a little hesitant at this juncture at least for the short-term. Today’s move was positive and a few more days like today would bode well for a sustained rally , but I think we might start to turn around  here and possibly trade around the support levels I mentioned earlier in the S&P. Of course, I would love to see a continuation of this rally and there is still some more room to the upside, but I think once the S&P reaches 1280 we could see some decent resistance as we continue to move within what seems to be (at this point) an established summer trading range. After the trading day tomorrow we move into a seasonally bullish time of year. This might be the assistance the market needs over the next week or so.  Be nimble.

 RSI Wilder (5) for July 26, 2006

• SPY – 66.6 (neutral)
• DIA – 65.2 (neutral)
• IWM – 53.8 (neutral)
• QQQQ – 53.8 (neutral)

The Rally Continues or Does It?

For the first time in over a month a rally was sustained. Does this mean the rally has legs? After struggling to gain any ground today the major indices moved substantially higher towards the end of the day only to give back a chunk of profits after the bell. Hopefully this is only a small step back in what looks like a decent set-up for a sustained rally. After Monday’s rally many were looking towards today to see if the rally would continue. Over the past month or so we have had three sharp moves to the upside only to give back everything and then some a few days later. So far the market has been able to move past some rather bearish historical precedents so this is certainly a positive for the market going forward, at least for the intermediate-term. If the market can maintain established support levels we could see another spike higher as we approach a seasonally bullish time year. The end of July/beginning of August is historically bullish so if the seasonal precedents come true this year we could see a nice move going forward. Certainly, the seasonal picture is falling in line with the current market environment so the probablity of a move higher increases slightly.  For the short-term we are nearing overbought in the Dow and S&P so we could see a step back in the next day or two. If this does occur watch to see if the S&P can hold the 1260 level, if so the bulls should come out to play once again.

RSI Wilder (5) for July 25, 2006

• SPY – 65.8 (neutral)
• DIA – 64.0 (neutral)
• IWM – 55.8 (neutral)
• QQQQ – 54.8 (neutral)

Will this rally have legs?

Today’s rally was identical to the last three over the past month, at least so far. Each rally ended the day with a bullish precedent, 10-1 up versus down volume. Historically, these types of moves have sparked buying interest and have led to some decent gains going forward. Unfortunately, as we all know the last three have sold-off immediately following each rally. However, one historical precedent was broken today, the post-expiration blues.

As I mention on each options expiration, the day following expiration is historically bearish, especially after our recent options expiration. Well, today that strong seasonal bias was broken as the market rallied without hesitation. This could be the bullish sign the market needs as a jumpstart to move forward over the intermediate-term. However, it looks like we might have some difficult headway for the short-term as some decent resistance sits overhead and we are nearing an overbought state in the major indices, but if we can consolidate here or extend today’s rally we could be in store for our first sustainable rally in quite some time. When markets are able to rally in the face of an overbought state this is usually a good sign going forward. We shall see soon enough. Furthermore, there seems to be a good possibilty that we hit the bottom of the trading range that we have been carving out for months. Another cliche – only time will tell – but if time favors the bulls, given the recent action and the techincal indicators I have mentioned over the past few weeks, we could be in store for a decent rally over the next several weeks. Take care and have a wonderful night!

Daily Articles of Interst

• : How a Trade is Made – Nice educational tutorial from our friends at the CBOE

RSI Wilder (5) for July 24, 2006

• SPY – 61.9 (neutral)
• DIA – 61.7 (neutral)
• QQQQ – 49.6 (neutral)
• IWM – 54.3 (neutral)

Expiration Blues

The market never gave the idea of a follow through to Wednesday’s oversold bounce a chance. All of the major indices continued to sell-off today and are now below the pre-Bernanke levels. As I mentioned yesterday, if the market can hold current levels early next week we should expect to see another push higher. First, we must overcome the post-expiration blues that usually occurs the day immediately following options expiration. Historically, the day following options expiration is bearish and the June period is particularly weak. A knee-jerk reaction to a move lower would certainly be the best scenario for the bulls.

QQQQ is once again oversold and if the rest of the indices follow the tech-heavy index’s lead we could most-likely see another short-term bounce. The question is, will this lead to a sustainable rally?  Amid of the negativity that is currently weighing on the market are some fairly reliable and rare bullish indicators that usually signal that an intermediate-term low is near. The bullish indicators were signaled early this week  so we acted accordingly. Wewere hoping a follow-through would occur after Wednesday’s rally, but as we all know that never came to fruition. So we move to next week and as I mentioned things could get rough on Monday, but if we can make it through without being banged up too much (stops being hit) we should be rewarded handsomely over the next few months. Until next week. Have a wonderful and relaxing weekend!

RSI Wilder (5) for July 21, 2006

• SPY – 38.8 (neutral)
• DIA – 41.3 (neutral)
• QQQQ – 26.6 (oversold)
• IWM – 30.3 (neutral)

Consolidation and then Some

Was yesterday a fakeout? Well the Nasdaq gave back all the gains from yesterday and the Dow and S&P gave up roughly 50%. By the looks of todays action the answer is leaning towards, I hate to say it, yes. Although, I am not going to give up hope just yet as  there is still some hope of a sustainable move higher if we can hold up tomorrow and Monday. We are entering some fairly strong seasonal weakness over the next few days so if the market, namely the Nasdaq, can hold here or move higher than I feel another short-term rally is in the cards.

As I write this the futures are up, but we all know how quickly that can change by the opening bell tomorrow. Both Google and Microsoft are higher after their earnings release and ahve managed to move the futures higher.  Hopefully, this is the kick in the pants that the poorly performing tech sector needs for a sustainable (or at least a short-term) move higher. I would have preferred to see the Nasdaq consolidate today (which looked highly possible through mid-day) but the bulls did not display any conviction after yesterday’s bounce. How the market performs over the next few days should give us some decent clues as to where we are headed over the coming days and weeks so be nimble.

Daily Articles of Interest

• Don’t Have to Be Tarnished

RSI Wilder (5) for July 20, 2006

• SPY – 47.6 (neutral)
• DIA – 51.0 (neutral)
• IWM – 37.8 (neutral)
• QQQQ – 33.1 (neutral)

Bernanke Bounce

I have mentioned over the past few days how the market was primed for a bounce. Well, my service established a position (call options) mid-day yesterday in the tech heavy QQQQ and was rewarded handsomely today. Our proprietary signals worked to perfection. We had to wait several months for a signal, but it was well worth the wait. As I always say patience, patience, patience. Many investors forget this concept and stray away from the long-term course and usually suffer the consequences as a result.  We have yet to close out the position as there still seems to be more room to run in this current market environment. We do anticipate a possible struggle to move substantially higher over the next few days, but if we can consolidate here and move slightly higher or stay flat over the interim then we should expect to see another spike higher over the next week or so. The market left us with some amazing bullish technical indicators for the intermediate-term so the move today certainly has the possibility to gain some legs. The next few days should give us a decent indication whether or not the move today was a fakeout or the beginning of a sustainable move higher. I certainly hope it is the latter.

As I stated yesterday, there are still many uncertainties to overcome (geopolitical, earnings reports and guidance, etc.) over the short-term, but if we can get through the next few days with a slightly bullish bias we should expect to see a continuation of today’s rally. Until tomorrow. Have a great night!

 Daily Articles of Interest

• Is a Necessity, Not a Luxury

• : Inflation under control

 RSI Wilder (5) for July 19, 2006

• SPY – 44.6 (neutral)
• DIA – 58.7 (neutral)
• QQQQ – 44.6 (neutral)
• IWM – 57.0 (neutral)

 

Is this the beginning of a sustained rally?

The Nasdaq 100 (QQQQ) established a new low today while the S&P (SPY), Dow (DIA) and Russell 2000 (IWM) were able to tread above recently established lows. This scenario could potentially be very important for the short-term health of the market. The fact that the other major indices, especially the S&P, were able to hold recent levels without establishing new lows and that the QQQQ snapped back immediately and led the market higher after the new lows were set proves that there is still a decent number of bulls out there ready to put their money to work. The lows in the S&P today should act as a decent support going forward.

Many on Wall Street are predicting tomorrow to be a pivotal day for the intermediate-term. Big Ben begins a two-day mid-year session with Congress and the market will be listening intently to his every word. No one knows for sure if he will give a hawkish or dovish scenario for the economy, but if the market does move lower and we can hold the support levels established today there should be some buyers ready to pull the trigger. We are coming off of one of the worst weeks for the market in quite some time as the Dow and the S&P just broke a losing streak that happened to be the worst in several years, so this market (if it is going to move higher) should be prepared for the worst. If Mr. Bernanke indicates a pause in interest rates for August we could see this market fly. As I stated yesterday the probability favors the bulls over the short-term and a few more moves like today and we could be in for a sustained rally. There are still many uncertainties to overcome (geopolitical, strength and guidance of earnings, etc) over the short-term, but if we can get through the next few days with a slightly bullish bias the market should be poised to move higher over the coming weeks. As I write this the futures are down on Yahoo’s report so if there happens to be a gap down tomorrow with a quick recovery this could prove to be the healthy scenario  the bulls need. We must remember that options expiration is Friday so expect to see some decent volatility over the coming days. Have a wonderful night and trade smart.

RSI Wilder (5) for July 18, 2006

• SPY – 34.2 (neutral)
• DIA – 34.8 (neutral)
• QQQQ – 24.3 (oversold)
• IWM – (neutral)

Next Page »