Long SH at 45.46

Based on a buy signal on the hourly MACD, plus a bullish divergence on MACD-H and Stochastics.

Suggested reading list

When wondering what to read next, this is a great source of answers.

http://www.ritholtz.com/blog/2011/08/james-montier-suggested-reading-list/

Market status on Aug 20, 2011

UUP is hovering around its support level at 21. Its floor seems to be 20.80. It's possible that it's going through a multiple bottom pattern, especially if it manages to get back up to 21.5 and then pass that resistance level.  If that happens, it would confirm the bear market in equities, and probably take some of the heat off of the gold rush.

GLD has briefly passed 180 and is now at 179.95. It's 25% above its 200-MA, which is pretty extreme, and likely not going to last at this level for long.  However, it's hard to pinpoint the timing of a coming mild correction in this strong trend.

USO went below its 52-week low of 31.50 and reached 30.50 intra-day, before bouncing back up to 34.5, and now has resumed its downward path and is back at 31.50. The trend is down, any slightly overbought signal is a shorting opportunity, especially after a close below 31 (which hasn't happened yet this time). If this important support level is broken, the next target is in the low twenties.

DBC, at 29.10, is in a down channel, currently halfway between the two channel edges. It did not complete the possible head and shoulder pattern that seemed likely a couple of weeks ago. Resistance is around 30, support around 27.

$TNX fell past its support at 24 and is now at 20.71, the low point reached during the 2008 market crash. It's hard to imagine that it would go any lower.  UBT is at 113.70, and its 200-day MA is at 81.1, so it's at 40% above its long-term MA.  Now that's really extreme.

TFI is at 23.32, in a solid uptrend. Seems destined to go higher.

SPY had another bad week and dropped 4.64%, to 112.64.  The bear market seems very very likely, after the bounce to 121 failed to gain any further.  The bounce is a typical behavior after completing a head and shoulder top, and now we can expect it to keep falling, unless of course the support at 110 holds. 110 is a very important level and if it is taken out, the next stop seems to be 100.

Headlines at Yahoo Finance are still talking about buying opportunities, which seems to indicate we're still in the denial stage. If this is the start of a real bear market, there is a lot of space to be covered to the downside, and we'll have to get to the final stage of despondency before we see the real bottom.  It could take months.

Long SH at 44.38

The SH hourly chart is showing divergences in MACD, Stochastics and RSI.  There is also a potential support around the 44 level.  The market has been quiet for a while, after the big drop of two weeks ago and the wild gyrations of last week.

 

I have doubts because the daily chart is showing MACD on the verge of giving bullish signal, but the direction of the market trend is down, and my hypothesis is that we're seeing the bounce after the big drop, and that the bounce has mostly run its course, and that a new leg down is coming.

 

Update on August 22

Sold at 46.48, after seeing a sell signal on the hourly MACD and Stochastics. This may have been premature, but my minimum target had been reached.



DUG no longer in exponential growth

Prices can only keep moving that way for a while, and in fact, the day after I wrote my thoughts on DUG, it peaked and it started moving back down. It seems that divergences on MACD and RSI on the hourly chart were reliable this time.

After the big drop from 39.50 to 35 in less than an hour, DUG has shown some weakness - which was really market strength due to the Fed's announcement of their intention of keeping rates at zero until 2013. This morning MACD crossed the slow line, and RSI is now heading up.

Time to get back into it?

DUG in exponential growth

DUG is growing exponentially these days, because of the equity market crash. 

I have a hypothesis that, on the 15-minute chart, when the price tests the EMA(26), or the RSI is below 50, it's a good entry point.

Buy signals on MACD are coming too late because they tend to happen after the open on a gap up.

Also, we seem to see a two-day cycle: one day of strong growth, without pauses, followed by one day of consolidation.  Today was growth, tomorrow we should see some consolidation, if this cycle holds.

The line of support/resistance that forms during the consolidation days should also be a good level to place stops under.

Market status

The week ending August 5 was quite eventful, especially in the stock market. But let's go in order and start with the US dollar.

After breaking out of the triangle, to the downside, in mid-July, UUP touched its support at 21 and then started to creep back up to the lower edge of the triangle, which is now its resistance line. On the short-term, MACD and Stochastics indicate some possible upside bias, but the long-term trend is down, and the intermediate is somewhat sideways.

GLD is now above 161, and seems destined to go even higher.  It is almost 6% above its 50-day MA, and Stochastics indicates that it may be due for a minor pullback, which would represent a buying opportunity.

USO touched a low of 33 last week, but then closed at 33.95. The trend is down, and it may be ready for a bounce, given how oversold it is. The 52-weeks low, made in August 2010, was 31.50, and that may very well be the target of this leg down.

DBC is at 28.82, and seems in the process of making its own head and shoulder top, which would be confirmed with a solid drop below 28. The trend is down.  After 28, the next stop is the 25 to 26 level, which saw some back-and-forth action in Fall 2010.

$TNX is now at 25.58 and saw an 8.81% drop last week.  Ouch. Although the internediate trend is down, there is some visible support at the 24 level, last seen in October 2010. I would venture a guess that it would form a bottom in the next couple of weeks, but I don't feel strongly about it, and I would only recommend to sit and watch the action. The action in TBT and UBT, especially MACD-H and RSI(10), are suggestive of an imminent bounce.

Municipal bonds (TFI) are off to new highs at 23.12, and enjoying an uptrend. They rallied 1.56% last week while the stock market got hammered.

SPY dropped 7.15% last week, and is now at 120.08, after touching an intraday low of 116.86 in Friday August 5. DIA dropped 5.68%, while IWM dropped 10.55%, so blue chip are holding out better, and small caps are leading the way down.

In general, the stock market seems to have completed a head and shoulder top. In the case of SPY, the height of the formation is 11 points (136-125), the neckline break is at 127, so the minimum target is now 127 - 11 = 116. Which is close to yesterday's intra-day low. So now the question is are we done with this drop or is there more to go? My general feeling is that we're not done yet, the bottom will be found in a week or two, maybe after a bounce, or two. Keeping an eye on MACD and Stochastics should be useful for identifying overbought levels. Hourly charts are probably indicated while the market is moving so fast.

Long VXX at 31.19, sold at 31.34

Today, Friday, was really a crazy day in the market and the VIX was shooting up. I figure why not ride some of that momentum and buy a dip?  Instead of looking at MACD, like I should have, I only looked at price and at the first sign of weakness I got in, in the middle of the day. Big stupid idea. No risk management, no regards for technical indicators, no stop loss order,  no plan, nothing.  I was lucky that there was a second rally in the afternoon and I was able to get out without too much damage. Except that next week I will have less liquidity because I will have to wait for my trades to settle.  Real smart.

Long DUG at 34.50 and 33.02, sold at 33.69

Today was another mad day in the market, and I missed a chance to buy back some more DUG at less than what I sold it yesterday, since it opened low around 31.70.  But instead, I watch it fly up in a few hours to over 35.50, and I have to admit I was getting really agitated.  Not good. So at the first drop I got in, thinking that today was the capitulation day of the stock market and consequently DUG was going to move higher and higher.  But instead it moved lower.  I was glued to the chart. As it moved towards 33, I realized that ONCE AGAIN I had bought without any regards to MACD, which has been very reliable these days in indicating good entry points.  If only I had been paying attention to it! So once more I bought when MACD was giving short-term sell signals, and then relied on MACD-Hist to find an entry point for averaging down. I know. I averaged down by buying another lot at 33.02. Then I watched get even worse, because I WAS SUPPOSED TO WAIT FOR A BUY signal on MACD, which came later when DUG was around 32.50. Gut wrenching. NOT GOOD. Finally at around 3 PM there was a quick rally, which brought some relief because at this point I was bitterly regretting my impulsive actions and just hoping to get out even or with a minimal loss.

What I did wrong:
- everything
- no risk assessment before the trade
- no stops
- no attention to any technical indicators

Long DUG at 29.54, sold at 32.94

After getting out of the last DUG trade at 26.30, and then seeing it go up fairly steadily, without a chance to get in, I was definitely feeling that I was missing out on something good. I should have been keeping a keen eye on the 15-minute chart, being that these days the market is in free fall and prices are moving really fast, but somehow I waited in vain for a nice entry.  When I finally saw it reach 30 and then slowly back down a little, I figured get in now before it shoots away again.  Problem is, it was the middle of the day, not my usual time to trade. In fact, after entering at 29.54, I saw it slowly go down to 29, and I was pretty ready to get out right there and then.  But the decline stopped at 29, and the next day the market resumed its free fall, and DUG had a nice jump that help throughout the day. At the end of the day, seeing it ramp up quickly in the last hour, I took the safe route and sold at the close, because of the 10% gain and also because with these days' volatility I prefer not to hold a position overnight after such a good run.

What I did well:
- 11.5% return

What I did wrong:
- bought without consideration of technical indicators
- entered in the middle of the day, in the heat of an eventful day