Friday, May 30, 2008

May 2008 Rewind - Commodities Crosscurrents

This May, the major U.S. equity indices showed mixed results as commodities roared higher. Large-Cap technology was once again the clear leader with the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices posting monthly changes of +1.07%, -1.42% and +5.99%, respectively.

Although the mood on the street was generally positive throughout the month and volatility remained moderate, equities peaked mid-month against the daily onslaught of record commodity prices in the news. The Federal Reserve's April meeting minutes highlighting a narrower vote to cut rates than imagined, and more warnings of stagflation ahead certainly did not help. This outlook also negatively impacted bond prices, which were doubly hit by an unwinding of the "safety trade."

Oil hit a high of nearly $135 per barrel, only to fall back towards the very end of the month, punctuated by a large drop in the face of reduced supply as the U.S. Dollar strengthened and commodities speculators decided to take profits. However, with the hurricane season officially kicking off this weekend, prices have perhaps yet to see their true test against Goldman Sachs' prediction of $150 to $200 per barrel.

Meanwhile, Style-Box performance was again firmly in the Growth camp all along the capitalization spectrum, with particular strength shown in both the Mid-Cap categories. Although Technology issues performed particularly well this month (albeit selectively so), the Financials continued to struggle.

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: Positive
Volatility: Moderate(VIX 16-20)
Direction: Range-Bound

05.30.08 - All Quiet...

OK, not the first time I've posted with that heading. Looks like the three days of gains have sapped some juice from the day, with the exception of tech, which is showing the most strength along with the transports.

Cumulative Tick is slightly negative on the day, but positively sloping as of this writing. I'd speculate yesterday's highs/ R1 would present some resistance ahead of the weekend, should we get that high (SPY $140.90). As of this writing; however, we look more range bound. Enjoy your weekend.

Thursday, May 29, 2008

05.29.08 - Oil: Less Supply = Lower Price?

Who knew... mostly I'm ticked that my longs got shook out by the dip when oil first reacted to the supply reduction news. Impressive follow through buying strength going into the end of the month. Cumulative Tick is looking very good, but keep a close eye on it. I've hedged a bit for my long-term longs... but I wouldn't get in front of this with a true short until the tick shows signs of rolling over.

IF that happens as we bump into the convergence of the downward sloping ten- and twenty-day moving averages plus the daily R2 (about SPY $140.50), that may provide enough resistance to set up a quick short trade. WAIT FOR IT -- We'll see.

1:20PM CST UPDATE: We've hit resistance... but I don't know, could just as easily see a second leg up into the close.

2:40PM CST UPDATE: What do you know, covering at the VWAP.

Wednesday, May 28, 2008

05.28.08 - Recovery Bowl

Now that we are back above the VWAP and Tick is upward sloping, I anticipate this recovery will hold into this close as long as oil holds pat. I know, pretty big qualifier, keep an eye on USO.

1:25PM CST UPDATE: Well, it's not happening... you guessed it... oil. I find the divergences between USO (United States Oil Fund) versus DUG (Ultrashort Oil & Gas), quite interesting. More on this in the next few days.

Tuesday, May 27, 2008

05.27.08 - Depressive

Sorry for the late post -- as it turns out -- not much has changed since Friday. We got a little bit of a bid at the open that quickly turned around with the latest economic stats. Funny how Yahoo! Finance started out with a positive take on housing, and moments later changed the headlines to focus on the negative. I swear the tone was about as depressing as I've heard in the mainstream last week Friday. We need some sunny days here to turn around this depressive disposition -- I'm not kidding!

Meanwhile, we remain deeply oversold on a short-term basis. So far we are holding the line today... perhaps we'll see some more buy enthusiasm going into the close. I'd expect to challenge SPY $138.80 if we do.

2:10PM CST UPDATE: "Jeff, How did you KNOW!" Read the post again, we have been deeply oversold, particularly in the financials. Here we are at the start of a holiday shortened week going into the end of month. Once it was clear we weren't going to get taken down below Friday's lows and with oil down, the upside target for a first hit and pause was based on the intersection of the five-day MA and R1 for the day. [edit: remove nonsense]


Friday, May 23, 2008

05.23.08 - SPY Holding at Important $138 Level

"Famous last words..." I posted yesterday... should have trusted my spidy sense. The early damage is leveling off at the important SPY $138 level, though we did probe down towards the rising 50-day moving average.

With oil pulling back, maybe we will reprobe that low then see a small recovery. The thing is, with volume so light and buyers on strike ahead of the long weekend, it's anyone's guess. Worst case I'd continue to look to that 50-day around $137 to contain any further downside; we are already short-term oversold.

Thursday, May 22, 2008

05.22.08 - Stabilizing

Yesterday was overdone for a single day when the news shouldn't have been a surprise and we are seeing some mild stabilization efforts. I'd say longs are safe through the holiday save news and I'm covering. Hope those aren't famous last words.

Wednesday, May 21, 2008

05.21.08 - RUT Resiliance

Interesting how small caps have faired better yesterday and today. Individual sectors are all over the place, while the SPY is stable for the time being. This morning I think we saw some sharp short covering, but it didn't last long and I started to cover a bit as we moved below yesterday's lows.

Most of my indicators are going sideways, but I'd be careful as long as the VWAP continues on its downward slope. Oil is incredible and I'll put it all back on in the event of any strength.

1:05PM CST UPDATE: The Fed just released its FOMC minutes lowering GDP and raising inflation forecasts by about one percentage point each. Bye-Bye second half come back premise?

1:25PM CST UPDATE: Also, please note that we are now within the first pull-back range objective noted earlier in the week. If it fails, I believe we would see much stronger support at the SPY $137 level: the RISING 50-day moving average. Unless we see $150 oil within the next week!

Tuesday, May 20, 2008

05.20.08 - Downward Facing Dow

A little yoga humor for you today. No surprises here from a technical standpoint, and hot inflation + record oil are only pushing us along what looks to become a one way trade for the day. I would expect potential support over the next several days near SPY $140 (edit: though $138-9 may be healthier for the market). Meanwhile, "hold on to your shorts!"

Monday, May 19, 2008

05.19.08 - Light Volume Breakout > 200 Day MA

The title says it all; we finally got our break-out with some moderate buying pressure as the SPY pierced the 200-day. At this point I'm positioning for a pullback.

What I'd "like" to see is consolidation back down to the twenty day, then coming back above the 200-day to form strong technical support over the months ahead. That's not trading advice, just one possible scenario assuming economics can keep up with the come back rally.

Back to today, the SPY is in a holding pattern just above R2. Cumulative Tick is flat, but I don't really have a strong conviction of where we'll be by day's end. If we do see a second leg up, I'll put more on short at the close -- I don't want to fight the intra-day trend beyond getting fully neutral here.


Friday, May 16, 2008

05.16.08 - Visitors of this post...

...were ready for this hypothetical. Not too severe though and cumulative tick looks more mild than the price action. Perhaps we'll see some better support around the five day moving averages, which continue to slope upwards. How about that oil?

Thursday, May 15, 2008

05.15.08 - Sideways Trade post Philly

Not much more to say. We'll have to see if we can work off the overbought condition through time. If we can, I'd say it's all the more bullish for a break-out, but for the time being I'd prefer to be [edit] at least partially hedged.

Wednesday, May 14, 2008

05.14.08 - Midday Resistance at R2

We are obviously in a strong uptrend even as oscillators are beginning to indicate short-term overbought. Just trail stops as we move up. There may be more resistance at $142.50 in the next couple of days (the declining 200 day MA), but this would be the second test for the SPY and with the NASDAQ showing good leadership, we could really punch through this time.

I know that sounds two-sided. It is -- I'd just play it safe for now with stops on the long side and/or look to get hedged if we make much more headway. Meanwhile today, cumulative tick is quite strong following through from yesterday's little "W" bounce off the pivot and the moderated inflation news, though we're now seeing some price resistance at R2 ($141.80).

Tuesday, May 13, 2008

05.13.08 - Retail Higher, Stocks Lower

The little gap up was faded and we are now headed south, seemingly towards the 5-day moving average around $139.50. I imagine we will find some nice support between there and $139, should we actually head that far down. Take a look at tick though -- we've been seeing many one way trades this year and cumulative tick is coming down sharply and yesterday's "recovery" volume was awfully light. Metals are off big time, but narrowly recovering.

Monday, May 12, 2008

05.12.08 - 20-Day MA Provides Support

The 200-Day MA rebuff from last week found support Friday at the 20-Day upward sloping moving average, which continues to hold today. In fact, we broke fairly convincingly through the 5-day, though it remains downward sloping, so be careful/ trail stops on long positions. Meanwhile we are also pausing at R2. Cumulative tick looks good but keep an eye out for more possible congestion near that SPY $140 R2 level. How is that for a load of TA rewind? Good to be back -- thank you for all your emails last week.


Thursday, May 8, 2008

May 5-9 - Missing in Action

Hi gang, I forgot to post that I would be traveling this week and am largely unable to post. The pundits are crying foul with the commodities (short squeeze?) snap back, but you had to assume equities would struggle with regaining their 200-day moving averages, which I imagine they will continue to do. See you Monday.

Friday, May 2, 2008

05.02.08 - Fading the Gap

When we couldn't hold the large gap the first hour, price got taken down ahead of the weekend. I'm a little surprised it has been a complete one way trade through; I'd suppose we will hit potential support soon in the mid SPY $140 range. Tick is only midly negative. Looks like I finally got my energy/commodities bounce.

Thursday, May 1, 2008

05.01.08 - Not a Bad Way... start the month out. Everything but consumer staples, energy and metals are participating. Glad I lightened up on those after yesterday's pull back, but still have exposure. Cumulative Tick shows no sign of letting up at the mid-day.

1:05PM CST UPDATE: Why the fade? There are at least a handful of technical reasons. While I still think we could challenge SPY $143-144 in the not too distant future, this would rely on firming or at least placid economics. Don't forget about jobs tomorrow morning!