Bubbles, Bubbles, and Bubbles

First post of the month, hope it is not too late. I have been a little bit preoccupied this month, but if you read my previous post, and trade the trend with me, you would be having some paper profits ’till now. Don’t plan to do any technical analysis today, I will cash in some paper profits this week, as i expect a ‘weak’ pull back in the first two weeks of July. As earning reports come in, the volatility might rise again. Don’t want to be too greedy.

To address the topic of this post, ‘the bubbles’. I’d like to start with a question, “If there is no shortage of Oil supply, why is the oil price skyrocketing?” When the institutions (mostly banks) cheering the oil price will reach 150$ by summer, 200$ by 2009 or 2010, what are they based on, I still have a vague impression on what are they saying. I smelled bubble, I sensed the bubble, but I won’t see the bubble until it burst. Mr. Ben kept the interest unchanged last week, but I doubt European Central Bank will do the same this Thursday, if they raise interest, there would be a crack on US$ again. Gold is the commodity that should be used to hedge the US$, it shouldn’t be oil. I understand the agricultural commodities go up because the shortage in supply and floods. BUT OIL? I have a hunch that because the banks are trying to make back their write offs in the subprime crisis, they are cheering up the oil price to the high (150 max), and will short it back to the 80 ranges. Seems MR. Ben has been helping them a lot. But the suckers will be late buyers who could not resist the temptation.

I will not buy oil, and I will not SHORT it either, I will probably buy some put options if my hunch overpowers my objectivity (my trading laws – not picking the top). BUT What do I know, I am just an ordinary speculator who occasionally has some hunches over the market.

Good LUCK!

 

Keep your seat belt on!

I try not to be downer here, but if you really believe this post-holiday, light volume retracement could be the bullish sign, then I must say, keep your seat belt on, and wait. The market tumbled drastically last week with heavier volume made me think this might be the time to sell. I have no more positions left for either swing or long-term investments now, thanks to the bounce this week. I am not saying I made a good decision, and I might even cry out loud if I realize I sold too soon. However, I just don’t feel comfortable to keep any of my positions right now, as I just too ‘chicken’ to place any bets… Cash is the king when I have this kind of feelings, that is the what I learned from my past mistakes.

Still, let’s look at the charts and see how the markets closed the month of MAY. And analyze some possible scenarios on how markets gonna act.

1. 2. 3.

1. SPY: I questioned the steepness of the trend line two weeks ago and expected a pull back. Then I saw the drastic sell off in last week, I wondered if it might not be just a pull back. Now, after the upward movement this week, I see no clear messages, neither up nor down. To be frank, if you draw a trend line again (red), it looks much better, which means the market could just go up from here, even though I doubt it could happen that soon. WHY? I just don’t trust post-holiday, light volume trading. IF I want to enter for long term investment, I would like to see a higher high appear on SPY, with stronger volume and momentum. I don’t really care if the blue trend line broken next week. I want to see a higher high at least closed above/@ $145 level. If the red trend line broke first, I MIGHT not wait for the lower low to rush in my short positions. Still, the support levels you should watch are $138.5, $137.5, and 135 and etc.

2. QQQQ: Qs had a pretty good run today, thanks to Dell’s strong earning. From the technical point of view, it covered relatively the best among the three. And its old uptrend line is still holding. NICE! But it seems to have difficulty to break the support sits around 50.20 area. Especially, with the weaker volume upward movement, I have to see the higher high to confirm the bullish trend. Otherwise, I will watch how will be the red trend line broken (volume and momentum).

3. XLF: Financial is still lagging behind, but I really happy to see it hold on above the supports at 24.40/24 levels. For the first week in June, I’d like to see whether those supports could still hold the selling pressure, or it could actually push the price higher. Don’t know, don’t say. Be patient and calm.

Good Luck and Happy SWING!

 

What if it is more than just a pull back?

It didn’t take that long for the stock market to give back its recent gains. I did expect a pullback as I mentioned in my previous post, but this is just too much and too quick. Hence, it made me to wondering what if this is more than just a pullback? The market is tumbling faster than it was rising with relative higher volume. If so, this MIGHT BE a time to sell. I was happy to see with all the inflation worries, recession concerns, unresolved financial and housing issues, the market was still rising. But now, if it keep falling, it might be something called stagflation, which nobody likes to see. Here, I will still briefly explain the charts, and point out the potential supports and resistances we should pay attention on:

1. 2. 3.

1. SPY: The SPY stopped its rising pace at its 61.8%  Fibonacci’s retracement I pointed out in my previous post, and started its ‘pullback?’ quicker and stronger than I was expecting. Based on the indicators, it will go down further. If this is a pullback, I am looking for some supports to be tested, such levels as $136.9, $132.3 and $131 or maybe, just maybe the 50% Fibonacci retracement (the high of 144.30 to the low in the mid-march) around 135 area.

2. QQQQ: The Qs which was the strongest, also tumbling in sync with SPY. As the chart shows, it is just sitting on its upward trend line right now. I doubt it will sit there and reverse, so I am more concerned whether 200 EMA around 47 will act a strong support, if not, then watch closely for levels around $46, $45 and $43.80 areas.

3. XLF: Since XLF broken its red trend line last week, my eyes are on the $24 level already. It has been the weakest among the three, and it is showing more weakness. I would like to see the $24 level could be stronger enough to hold xlf’s falling pace and start recovering the ground in June, otherwise, it could be very dangerous.

Oil started pulling back, I am not sure if it will continue, but I won’t be surprised if it does. Even though this is only a four-day week, but it is going to be very hectic. New Home Sales data on Tuesday; Durable Goods Order on Wednesday; preliminary GDP and Jobless claims on Thursday; Personal Income and outlays on Friday. So be cautious and patience, you might be able to see a clearer trend by the end of the week.

Good Luck and Happy Trading

 

Long the Market with Caution

After the pullback (a lot smaller than I expected), both SPY and QQQQ are making higher highs. I don’t know what to add onto this price action but a opinion of long with caution. Qs is having a more than 62% retracement since the low it made at early this year, and SPY is getting there. Oil and some commodities are at the record highs, Gold is back to 900+. There is no good or bad, same as what I mentioned in the previous post, we are having a inflated market, as there is inflation everywhere, we shouldn’t feel surprised to see this kind of the market, instead we should be happy that market is not tanking when others are inflating. Let’s continue check the charts of the following ETFs, and see where should we be cautious.

1. 2. 3.

1. SPY: The 61.8% sits around $144.30 level. I’d like to see spy reaches that level before another pullback. I am waiting for another pullback because I feel the uptrend line (red) is too steep to continue. The volatility is slowing down, as memorial weekend is just around the corner, and summer is just steps away, so pace your own steps, this is just not the right time to be aggressive. The first support level is on the 200 day EMA ($140 level), and then $138 level.

2. QQQQ: Qs is very strong on the daily chart, the chart above is a weekly chart, as we can see the first potential resistance is around $50.50 and then $53. Support is around $48. It might be slowing down its rising pace and starting consolidation.

3. XLF: The financial sector is the worse performer among the three, as it hasn’t make the higher high yet since the early pullback. It seems already started consolidating. I drew two trend lines on the chart, now we just need to wait and see which one breaks first. If the red line breaks first, I will watch for $24.40 level for supports. If the blue one breaks first, I am expecting a higher high, which will push the financial to $29 level (the 200 ema).

Good Luck and Happy Trading

 

The Inflated Stock Market

Well done! Bull! and welcome back, if you plan to stay for long. I have been keep saying that I am not trust this bullish move, and having a short bias sentiment towards the market, guess I was just trying to be a contrarian, not a good one apparently. The resistances on SPY, QQQQ and XLF are all broken on Thursday with strong upward strength and volume. It took me by ’surprise’, more of a disbelief. Good thing was, I didn’t have any short positions for swing, was mainly doing some day trading.

As the economics report and employment data are better than expected, seems investors are pretty opitimistic and feel the bad things are behind us already. Since the inflation is inevitable, why don’t inflated the market too, as least money can be made here. Well, the market might be inflated, but I don’t think the bad things are behind us right now. So if you are riding or planning to ride this uptrend, be careful, and don’t take full positions, and pay attention on the resistances on the way, watch out for the test on supports. Based on the indicators, there will be a pullback coming, and I will observe it closely. The following are the charts for now:

1.  2.  3.

1. SPY: The 140 level should act as support now, and there is very high possiblity that it would be tested next week, I’d like to see it holds steadily and back up again in order to confirm the bull. If 140 level fails to hold the selling, we will look at the green uptrend line, and the support at 137 level. The resistance now sits at 61.8% Fibonacci Retracement around 144.36. I doubt it will go straight to that level, but I could be wrong. Will see.

2. QQQQ: Qs is still the strongest among the three. All indicators show in the chart are bullish. The nearest resistance is around 49.70. It doesn’t seem that far away, might be reached in a day. The next resistance is around 50.80 level. I would like to see 48 level be tested first, before it go up to 50ish.

3. XLF: The financial also broke the resistance at 27, and seems going to heading higher, as two of the three indicators showing bullish signals, however the money flow doesn’t look that great. Next resistance is around 28.78, the 50% Fibonacci Retracement, and the 200-day EMA is sitting at 29. Supports are on 27 and the green uptrend line. Will see.

Next week doesn’t seem like a very hectic week, it might be a consolidating week, so careful and patience. I will write a new post for update if necessary.

     Good Luck and Happy Trading

 

Where is the Market Heading?

I still don’t like what I am seeing, but that doesn’t matter, does it? The general market sentiments are pretty bullish since the Bear Stearns bail out, and FED lowered another quarter percentage point AGAIN. TOO MUCH TOO LATE?  Nevertheless, I am still a little bit short biased, as I still don’t think recession worries, inflation FACTS, financial crisis, and housing slumps are behind us, any of those things could hunt the market down, not mention the combined impact. As I mentioned in my previous post, there are some major resistance and supports still wait to be tested and retested. Let’s look them again, and see you in MAY.

1.  2.  3.

1. SPY: Same old resistance and support, and bearish divergence still appears on CCI, but look at the price patterns, there are higher highs and high lows. If the price is the king, then I guess you can ignore the CCI, but the resistance at 140 is not really broken yet, and the 50% Fibonacci Retracement at 140.71 also acted as resistance today. With the sell off as the end of trading day, I am still keep my bearish sentiment over spy, until 140 could act as support and been tested. BUT you never know right? Sometimes you hate that you have a bias towards the market, well, that’s the art of trading isn’t it. Uncertainty should be something you enjoy, rather than scare.

2. QQQQ: Qs is relatively stronger than other major ETFs, but I am not sure whether it will sustain, the resistance is still need to be tested, supports too, not sure which one first, but I ‘feel’ the pullback is coming. Watch out for 48, 46.40, and 46 levels. Make you own decision, price is the king, only when you act objectively.

3. XLF: Same as spy, the CCI shows bearish divergence, and price is hesitating on the resistance at 27.17, seems like a pull back is coming, but there is possibility for break out. I am holding steadily, with a little short biased, I won’t rush in for longs (mid to long term swing and investment trades).

Tomorrow and this week is still critical, as there are some economic data coming, you will see more clarity slowly, or suddenly. Keep your cool, and patience, they are important too, especially with the current market condition.

Good Luck & Happy Trading

 

A Good Book for Traders

Trading Rules that Work – The 28 Essential Lessons Every Trader Must Master

                         – By Jason Alan Jankovsky 

I just finish reading this book, and like it very much. My favourite is rule #9 Don’t over trade. Here are some quotes:

“…overtrading is a symptom of a trader’s impatience with the opportunity he has selected or frustration over the results he has achieved.”

“overtrading is a function of not understanding your time frame properly, not following you rules to begin with, or not following your trade system properly.”

“The symptom of overtrading is often subtle so that by the time you are willing to admit you are doing it, the damage is done.”

 The author also gives some advices on how to overcome your issues with overtrading, take a look, it might be very helpful to you.

Other rules like “Your first loss is your best loss”, “know the limits of your analysis”, “be a student of yourself” are very good too. Overall, this book could act as a trading guidelines for novice traders and a self-examiner for professionals. Strongly recommended.

Happy Learning! Happy Trading!

 

 

Bear vs. Bull

The volatility is slowing down in the markets compare to past few months. I don’t know what should I say here, but I don’t feel good about it. The market has been rising based on hopes for past weeks, and now also slowed down. I expect a pullback here if not a reverse. Even I’d like to see another major strength come and send markets higher, but I doubt that it will come soon. Next week, there will be another FOMC, will Uncle Ben lower the interest rate again, if yes, how much? If no, how badly could market react? Right now, I don’t plan to do any longs, shorts?… maybe. But I would rather take the cash position, and wait for further clearity. Let’s examine the daily chart of SPY, QQQQ, and XLF:

1. 2.  3.

1. SPY: On the SPY daily chart, you can easilyspot the bearish divergence between price and Stochastic/CCI. The momentum is not as strong as it should be (or you expect it to be), which send me some warning signals. You may say that the 20 and 50 EMA crossed over, which would show a bullish signal, ”yes” only if we are in a trendy market, but 200 EMA seems like a strong resistance, for the past a few days, and 50% Fibonacci Retracement is just above it sit at 140.71. Hence, as long as the price is below these levels, I am not bullish on SPY. I am watching whether 137 will hold up the selling pressure by the end of the week.

2. QQQQ: Qs is relative stronger than SPY, even there is a bearish divergence showed in the chart, it doesn’t look that bad. The earnings of APPL, MSFT and BIDU are coming up, whether the market will sell off on news or keep buying I don’t know. But it will be clear by the end of the week. A bullish note on QQQQ is that it formed a higher low and higher high, whether the strength will last, we have to wait and see. I am watching 46 and 48 levels on Qs, and have a slightly bullish to neutral sentiment on Qs. If 46 couldn’t hold. SELL!

3. XLF: The financial sector seems like the weakest, a lower high is formed, I am expecting a lower low, which will drag it back to 24 level. Hey! I could be wrong here. On the up side, 27.17 is pretty strong, and seems unbreakable. So I am bearish on XLF till 27.17 is broken.

Good Luck and Happy Trading

 

 

My Laws of Trading (Revised)

This is the revsied version of my laws of day trading, feel free to leave any comments or quesitons. Suggestions are very much appreciated.

1. Wait for price confirmation before initiate a long or short position.

2. Price is more important than indicators.

3. Apply different strategies based on the market condition, let winners run in the trending market, observe the momentum, set realistic goals in the range bound market.

4. Pay attention on the price relationship with EMA/MACD (trending market), Stochastic (range bound).

5. Look for higher highs/higher lows or lower highs/lower lows to confirm the strong trend market.

6. Use trend lines and pay attention on 45 degree trending up and down.

7. Don’t try to pick top and bottom; it is very expensive way to trade.

8. Don’t trust the support and resistance or any pivot points, take the partial profits or liquidate the trades if you concern about the support and resistance. BUT don’t place bid or offer position on the points, unless the price shows confirmation.

9. Don’t take the trade if you are not confident with it.

10. Don’t over trade!

11. Cut the loss quickly in any kind of market condition, discipline is the KEY.

12. Loss from top reaches 20% of your limit, stop trading for at least 30 minutes.

13. Don’t try to cheat the market, because 99% of the time you will be the one who lose.

14. Psychological management is critical. STOP trading for at least 30 minutes after experiencing 3 continuous losses.

15. Set realistic goals everyday, stop trading for at least 30 minutes after the goal is achieved.

16. Get enough sleep, it helps you to focus.

17. Take it easy, it is a hyper intensive job, don’t get too emotionally involved, after all, health first, then money…

 

Still in the Rangebound market…

Good news, or at least I think it is one that we are still in rangebound markets. However, I certainly do not want to see the markets go side way. No predictions here, and the earning season is just around the corner, so where are we heading are still wait to be seen. The Fed is working on the credit crisis, housing market is still weak, recession is definitely here. There are still some news and economic data to be announced during this week, such data as ISM Mfg Index on Tuesday, Factory orders, on Wednesday, Employment situation on Friday. Mr. Ben Bernanke will be speaking on both Wednesday and Thursday to address the financial turmoil and Bears and JPM’s merger. It will be a hectic week, let’s look at chart and see what could happen.

Daily Chart:

1. 2. 3.

Weekly Chart:

1. 2. 3.

1. SPY: The SPY is trading in the range between 138.90 and 125.40 since mid January. Based on the daily chart, CCI is showing weakness, and price action is heading down, as all EMAs are heading south. I do not expect to see the market break the range this week, but I like to see this neutral position change. The weekly chart indicates another support at 128 level, so pay attention on it too.

2. QQQQ: The Qs broke down the 42 level a few times in the past 2 weeks, and created a support around 41. Its top range is round 45.9, and same as SPY, Qs is at the neutral position too. I would like to see Qs to be closed above 45 level if the rest of the week is bullish, otherwise, I would watch the 42 level very closely. On the weekly chart, the 200 EMA is at 43, I do not have too much expectation on this level, as it did not act as a support in the past weeks. But you never know.

3. XLF: The financia Select Sector ETF has been beaten down badly since last October. The channel is drew on the daily chart, with a range between 27.6 and 23.3. It might go down further if Fed still couldn’t bring confidence into the market (that is not in their job description anyway). So I would definitely buy it for long term investment now, but it has been a good day trading candidate. Based on the weekly chart, the 20 EMA has been acting as a resistance, so I would expect to see the price close above it to confirm the bullish trend.

The market has been giving mixed signals, and shows a lot of indecision, let’s see if the new earning quarter will do any good.

Good Luck and Happy Trading!