Friday, February 29, 2008

February 2008 Rewind - A Leap Frog Thumping

This February, the U.S. equity indices posted their fourth consecutive month of declines. The S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices recorded losses of -3.48%, -3.04% and -5.22%, respectively.

Although there was a seemingly relentless flow of negative news focused on continued write downs among a widening cast of financial players, deteriorating economic metrics, pernicious debt illiquidity, new dollar lows and skyrocketing commodity prices, most of the month was spent playing a random-walk game of "leap frog" with one-day-up, one-day-down, all within a relatively tight trading range.

While it appeared late in the month that the markets were ready to look forward to a recovery theme based on various bond insurer bailout proposals and reassurances from Federal Reserve Chairman Bernanke, the final "Leap Day" brought more negative news than the markets could handle. Together with heavy municipal bond selling by hedge funds seeking to satisfy margin calls, the nascent recovery attempt was finally thumped.

Interestingly, Style Box performance was split, with Small-Cap Value and Large-Cap Growth stocks showing relative strength even as technology shares continued to lead the decline. For the bulls, February's game of "leap frog" was just plain no fun.

The Style Box below was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV).

The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

Sentiment: Negative
Volatility: Elevated (VIX 21-30)
Direction: Sideways/ Down

02.29.08 - Crosscurrents

Lots of cross currents on a day like today, but you don't need me to tell you the've all ended up contributing to the downside. As of now, there is strong resistance at the VWAP and the 5-day MA has turned over. From a pure technical perspective, we looked vulnerable yesterday, but I thought with the end of month perhaps we'd be saved for a day or two. No such luck on this Leap Day Friday!

Unless we can see a meaningful turnaround in the cumulative Tick, I'd be inclined to stay away from adding further exposure. By the same token, I'm not bailing on what I've got. I may change my mind if daily volume ends up being particularly light today, which together with the big down move can be a harbringer of further weakness ahead. If I have time I'll post some stats on this trade.

2:OOPM CST UPDATE: It doesn't take a "leap" of the imagination to know the bulls would have rather skipped the day. Apparently Muni-Bonds are being liquidated by several hedge funds to meet margin at levels several times or more the average daily volume. Art Cashin of CNBC says if it were early in the week, we would be down 500 Dow points. Selling is happening across the board including energy for the first time in a while. The Vix is now at 26.07. I'd be long if it were tradable. This is really (generally) the same as saying there could be further price pressure in the week to come.


Thursday, February 28, 2008

02.28.08 - Glad to Be Hedged

Good day to have been hedged. That said, I'll be looking for signs indicating it's time to take them off. On one hand, cumulative tick is extremely negative, and rarely reverses intra-day once it gets this bad to the downside. On the other, the five-day moving averages remain upward and the leaders (XLF, IYT & SMH) are already down nearly 2%, so one has to wonder how much worse they can get this session.

Wednesday, February 27, 2008

02.27.08 - Rate Cut Rescue

This market continues to impress -- not that the Bernanke easy money commentary and higher loan limits didn't hurt. We did get several short signals around mid-day yesterday. Because they "arrived" in a flat market, I elected to leg-in, so really just hedged at this point. Note that Tick and AD line are effectively flat. Semi's are again leading the pack with Transports actually down on the day.

Edit: Notice also that the SPY is now up against its 50-day MA, which could represent resistance for the technically oriented. As a second note, I see the most recent Intermarket Sentiment model signal closed yesterday for a 2.1% gain over a five-day period.

Tuesday, February 26, 2008

02.26.08 - Strong Cumulative Tick + Trend

It's a nice move with Semi's leading the charge, but it this keeps up all day long I will use the strength to rehedge and go short if indicated. So, is all the bad news that's out there -- out there? This what the market seems to be saying over the last several days and we may well see a run to SPY $140. Until we definitively broach the 200-day, however, this is but a bear rally.

PS - What's up with this new "Squak Box Rewind" deal on CNBC!

Monday, February 25, 2008

02.25.08 - Sideways on Negative Tick

Note how the cumulative tick is slowly going negative. For the day, I think it will be important to hold at the rising 5-day moving average (dotted blue line). So far we have done nothing to resolve this sideways pattern the market has been trapped in for the last two weeks.

Friday, February 22, 2008

02.22.08 - New Day More of the...

Today looks just just like yesterday. I would'nt look for a "bottom" just yet, cumulative tick is just too negative... maybe if we tank into the close I'll think of a long hold over the weekend. Notice how today's peaks and troughs align nicely with relative volume spikes (the thin dotted green/ red line). This is often the case and may be helpful to you day traders out there.

I took off hedges on my pull back strategy too soon, but so far the positions seem to be holding their own. In addition, we have very few new buys today. This may be considered bullish as the most beat up stocks are holding up inspite of the index declines.

Here are next week's calendars:

o Economic
o Earnings

Blogs to read:

o Quantifiable Edges
o Vix & More
o TraderFeed
o AlphaTrends - PLEASE click and soak in. I agree with Brian on this one.

PM UPDATE: As a side note, the Intermarket Sentiment model went long a couple days ago. I have been reluctant to take it in this flat environment with no associated major sell off. May be time to start thinking about it though...

2:55PM CST UPDATE: Amazing, and how was that for timing! I have written before about the impact this type of news could have... if this comes to pass, this would spell resolution to this tightening range to the upside:

A CNBC commentator noted that a bailout plan for bond insurer Ambac (ABK 10.01, +0.78) could be announced as early as Monday or Tuesday next week. The report has given way to refreshed strength in regional banks (+1.0%) and multi-line insurance (+1.0%).

(EDIT) Having learned more about this "news break," this is still a speculative news play that could easily fail! How would you like to be the reporter that caused this to occur if it fails... and fundamentally it isn't so clear to me the import of the news. Somebody somewhere still bears risk even IF the deal goes through!
Enjoy your weekend!


Thursday, February 21, 2008

02.21.08 - Fed Hangover

Almost like any other Fed day. This is day seven of what has been a very tight up/ down/ up/ down random walk string of pearls. I'm keeping hedged until a more firm direction plays itself out. There is still a bit of a negative edge ahead.


Wednesday, February 20, 2008

02.20.08 - Held at S1

Looks like the market was satified that S1 wasn't going to breakdown in spite of the bad news. Could have been a quick trip down, so that's great news. Speaking of which, I'm still trying to figure just out what got us moving like this. Don't get fooled into not trailing stops on this move, cumulative tick is still quite weak. Program trades trigger in both directions!

Negative 30 degrees here last night, walking to work my confiremed cracked rib crunched at least as much as the ice under feet.

Tuesday, February 19, 2008

02.19.08 - Holiday Effect

Taking a little more risk over the long weekend paid handsomely, though we closed at the open and beefed up hedges. Looks like we weren't the only ones. The SPY managed to hold it's five day moving average, and the cumulative tick is now moderately positive. There may be more resistance at that declining VWAP though. The Walmart news is encouraging, but I saw the real big news as the Northern Rock nationalization. Amazing.

3:00PM CST UPDATE: Think I may have cracked a rib slipping on the ice hustling home near the close to get the phone fixed... ouch... well, yes, markets fell hard too with commodities firing big guns, but things managed to hold together relatively well, all things considered. Well, at least better than me.

Friday, February 15, 2008

02.15.08 - Long's Have Bad Edge

Well, I put a little long on the gap down at the open, but I am really not thrilled with the price action so far and there is a bad edge for longs on the day as a whole. Tick is fairly flat on the downside, though the Financials are showing relative strength on a curve steepening trade, no doubt. Don't forget we have a three-day weekend ahead.

3:00PM CST UPDATE: S1 Held! Enjoy your long weekend.

Thursday, February 14, 2008

02.14.08 - Bernanke's Cold Water

Looking at the daily charts, you can see how were were getting toppy even before this. Wait until the close to reassess and/or hold shorts/ hedges at least until then, these types of slides rarely reverse in my observation. Hope you honored your trailing stops.

2:00PM CST UPDATE: We just bounced off the five-day moving averages. Whether or not we can hold these will be a huge tell relative to whether or not the trading environment/ regime has truly shifted as described in prior days posts or not. If we can hold, it's a small green light to start adding-on, in my opinion. Tomorrow is options exp. Volatility is expected with a slightly negative expectation next week.


Wednesday, February 13, 2008

02.13.08 - Away We Go!

Great strength after the retail sales and inventory (edit: add) numbers today, which has allowed Tech to catch up. Looks like the rally will have legs, but I would not necessarily chase this on an all-in basis -- leg into the dips such as we saw at yesterday's close. And, until further notice, it's a bear market rally, so consider trailing stops.


Tuesday, February 12, 2008

02.12.08 - Buffet to Reinsure

This is absolutely huge news (Buffet). Put that on top of the possible begginings of a deal seeking environment (MSFT/YHOO), economic stimulus (rebates + lower rates) and this could be strong fuel on what remains an oversold market.

By the same token, I am posting early because there was a dearth of oversold stock buy signals today, and this often correlates to a short-term top/lull. Watch the first hour very closely. It may be a good day to minimally consider partial hedges for long positions until we see how this plays out. It has been a while since the market has experienced a sustainable trend, and until the mortgage insurers bite, there may be a tendency to sell this news. To paraphrase Buffet, his offers aren't an exercise in altruism. Cautious optimism is the tone, in brief.

12:40PM CST UPDATE: Cumulative Tick is positive, but vacillating and in a mild negative slope. Financials are really pulling the day, as one would expect. Let's see if we can get a second wind going into the close. Tough call just now -- it may be temptating for some to fade into the close, but I believe we are exiting that type of environment. It would certainly be very bullish to not see this type of action.

2:50PM CST UPDATE: And so it goes. Looks like the original intuition was the correct one. Still, with the exception of the NASDAQ 100 (rebuffed after a period of relative strength by the 20-day MA) and Transports, we have thus far held the gap. Now for AMAT... looks good.

Monday, February 11, 2008

02.11.08 - Moderate Buying Pressure

This comes inspite of a flat Tick and we are going flat on our leveraged positions for now based on a signal close. Nonetheless, it's good to see some stability at this level, and it still "looks" like we've carved a base.

Friday, February 8, 2008

02.08.08 - Sideways Friday

Am I the only one having trouble logging in to Google today? Finally got in, bottom line, keep a close eye on the cumulative tick, which has been flat to negative even as we saw some small level of upward momentum in the morning. Although it is nice to see the NASDAQ leading the pack again and the five-day MAs flattening, it is Friday and risk aversion remains relatively high, so it's a bit risky to hold long even as I have long signals. Keep an eye on the VWAP to help you manage your trades. As I edit this first go, we just fell below it on the SPY. As an aside, though I have been able to log in to the site management feature, I can't see the site itself.

1:00PM CST UPDATE: I still can't log into the Market Rewind site, so I have no idea whether or not this is posted. Sitemeter isn't indicating that it's under attack. If anyone has any thoughts, let me know.

3:05PM CST UPDATE: Another volatile, split day. It's good to see the Nas coming back and a slightly higher low for the day; we bought back in to the final minute pull back for the overnight/weekend trade. Still going light though. Finally able to get into Google. Enjoy your weekend.


Thursday, February 7, 2008

02.07.08 - Possible Bottoming?

We are observing a possible near-term bottoming today, which is good to see on bad news -- and we did get signals to put on extra long exposure, although I only took partial positions.

Small-caps and Transportation are showing relative strength. I'd like to see a stronger Tick before going whole hog in here (flat right now). If you are an investor, there will still be plenty of opportunity to get in. This bear is still on the prowl.

1:40PM CST UPDATE: Note how the five-day moving averages posed strong resistance across the board. This is technical selling on top of effectively technical buying. Now we need to see if the rising VWAPs/SPY pivot will hold. They may present a second chance entry for a bounce play. But again, manage your stops closely or trade with smaller positions, this is only day one of a rally attempt and we still have over an hour to go.

Blog to Read: Woodward ~ Bear Market Statistics

2:10PM CST UPDATE: Careful of downward vol into the close...

2:35PM CST UPDATE: Today has been by the book, but I can't post fast enough to keep up with the vol, should I install a Twitter plug-in gang? Meanwhile, let's see if we can't test that five-day again tommorrow. The more runs up to it, the higher the likelihood of a breakthrough. Of course, at present it is still sloping downward and trades against that indicated trend can be considered risky.


Wednesday, February 6, 2008

02.06.08 - Deteriorating Tick

Notice how the Cumulative Tick is losing ground. We could still break either way. Be careful, and as always, look for confirmation before placing a trade. Patience pays even though we are still very much in a day trading environment. I know, pretty banal, but hey...

Bounce Statistics - This would be day three, -4.4% (1:25PM CST).

Tuesday, February 5, 2008

02.05.08 - I'd Stay Away

I'd stay away from this and wait to see where we are at the close. Once a day gets going like this, it rarely turns and short signals are still active.

3:10PM CST UPDATE: How was that for ugly. Took most of my hedges off at day's end, but no extra long yet, maybe tomorrow. I wonder how Super Tuesday anticipation plays along with the ISM numbers. Europe is starting to slow yet gold and the Euro were pounded, this could be water on the seeds of my US turnaround commentary from late last year.

Blog to Read: Vix and More ~ TRIN Extremes


Monday, February 4, 2008

02.04.08 - Overbought Workoff

As noted last Friday, after a 10% bump off of the January lows, a pullback or pause was becoming increasingly likely. Post morning markdown, the markets are finding some stability with the exception of technology and transportation.

Friday, February 1, 2008

02.01.08 - Yahoo! Boost + CDO Fraud Trade Idea

Yahoo, a positive ISM, a possible bond insurer bailout afoot (edit: add), and first-day-of-month effects are keeping us nicely propped up here in spite of the jobs report. However, looking at the daily time frame, we may be setting up for at least a small-pull back here based on the magnitude of the snapback alone.

Meanwhile, cumulative tick remains constructive as we move laterally here. Can we hold gains going into the weekend? If we can, it would be quite bullish in spite of my short-term pull-back call.

Trade Idea: This comes from my brother, Greg Pietsch: Short Merrill Lynch (MER), Long the S&P Select Financials Spider Fund (XLF). The Wall Street Journal links below tell the storey, we'll see how this develops:

UPDATE: Merrill is pulling away! Hey now! Cramer (I know) says "short covering" across the sector with the most beat up benefiting the greatest... OK, so wider spread...?

2:10PM CST UPDATE: If you bought on the day I conjectured (1/18) "Capitulation?", today near the close would officially be a good time to close out if you were only in for the trade. If you did, congratulations, you made nearly 5.5%. Further, if you dollar cost averaged in on Tuesday, as intimated, you're up over 6.0%.

WEEKEND UPDATE: A second short-sale candidate, UBS. As my brother and I discussed on Friday; however, it really would take a basket of these and a whopping smoking gun to have the trade ultimately make sense. And with the yield curve steepening, things are looking more and more favorable for the banks in general. Besides, these things always seem to end up resolved in an industry-wide negotiated settlement... Well, don't they?

If we are skeptical, it's because we were both heavily involved in the Resolution Trust Corporation Savings & Loan clean up in the mid-1990s. If that looked messy in the papers, I can't even begin to describe how bad it looked on the ground. Interesting how MER reduced/accepted potential damages on the civil action by disgorging profits so quickly though. Hmmmm.