May 20th 2013: The case of the disappearing volume...

I like volume.  Volume = tighter spreads which results in better entries and exits.  I also like trailing a stop higher on runners with a stop market order because once my stop hits, I want out.  However, if you try to do this in a thinly traded stock, what often can happen is that your order will fill quite a bit lower than your stop activation price.  Not good, but at least you're out.  Worse, if you try to enter a stop limit order, the market can jump your order.  Meaning, the stop activation will trigger, but the sale can't execute because now the prices are much lower than your limit order.  Worse than that, you might erroneously think that your order got filled because you got a handy alert that said your stop was hit via email or text.  All of this nonsense has happened to me and I'm sure quite a few other people, too.  To sum up, I like volume and avoid thinly traded issues like a plague.

Lately, I've noticed that the volume in some ETFs that I used to trade is woefully inadequate for my needs (e.g., IWC) and even some of the high volume ETFs have much less volume than they used to.  Take the Q's, for example, QQQ busted out over 70 but the volume is about 10% of the 2008 plunges.  It should be easy to tell when a real correction (5+%) is upon us as volume will rip higher (at least double these anemic levels).

Here's the chart:

May 14th 2013: Solar stocks catch FIRE!

After a few months of consolidation, the solar stocks are catching FIRE again.  Maybe because it's summer?    Maybe because oil prices are still relatively high?  Who knows?  I don't pretend to be a fundamental investor.  I don't really care why.  I just care that they're going up.  Let's take the ETF "TAN" as an example.  The 6-month chart goes from the lower left corner to the upper right corner (i.e., the general trend is up).  We just had almost 4 months of consolidation (rest) followed by a breakout.  Very short-term (intraday charts), it looks a bit over-extended (overbought).  The bigger picture (weekly chart, see below) is showing a breakout supported by volume and FORCE.  During up-trends, boxes tend to act as continuation patterns and break in the direction of the trend.  A box-length move in the direction of break would put the target at $25.92.  Ideally, we'd get a light volume pullback to set-up a better risk/reward trade and then start to ramp up with volume.  I'd look to buy the start of the ramp on a 30 min chart.

Here's the chart...

I have no position in TAN or other solar stocks right now - although I might buy a light volume pullback in the future.  I did own some WFR calls which I sold yesterday.  In retrospect, there's not really much point in owning calls on a $5 stock - I should have just bought the common which acts as a deep-in-the-money call which never expires.  I still made money on the trade, but it wasn't ideal - especially when the option volume dried up.  After 10+ years, I'm still learning with every trade.  I guess that's part of the fun.

For more charts and to read a disclaimer, please see my public chart list on stockcharts.com...

http://stockcharts.com/public/1109955

May 5th 2013: Is this time really different for the $NDX???

The last 2 breakouts in the $NDX (see chart) were mediocre at best.  FORCE barely expanded and price went flat for weeks after the "breakouts".  However, this time might be different.  The $NDX busted out with wide price spread and higher FORCE than its had in the last 6 months.  That certainly looks bullish to me.

For most of the last 6 months, the Q's have lagged badly and I dutifully avoided them on the long side.  (Sometimes half the battle is staying away from the dogs).  But this week, the tide seemed to have turned.  For the first time in a long time, I was long QQQ calls this week and sold half on Thursday and half on Friday for some nice gains and currently have no position in the Q's.

Let's see if this breakout can stick.  IF it does, I'd be inclined to buy another dip - just as it starts to curl up again.  The number to watch is the previous box high at 2863.66.  That's my line in the sand.  Long above.

Here's the chart...

For more of my charts and to read the disclaimer, please see my public chart list on stockcharts:
http://stockcharts.com/public/1109955

April 22nd 2013: SPX is range bound and down!

This weekend, I had an epiphany of sorts.  The stock market is just like Smokey and the Bandit.  The Bandit is constantly trying to steal your money and stay a few steps ahead of Smokey.  If I ever get my hands on the Bandit, I'm going to wring his filthy neck...

From the recent $SPX chart, it appears that we're range bound and down!  [sorry, i couldn't resist]

After 2 failed breakouts, the FORCE index has turned blood red as volume blew out last week.  I could point out the bearish divergences on the chart, the chorus of secondary indicators (like accumulation/distribution days, bullish percent indexes, summation indexes, new highs vs. new lows) but I won't.  It all boils down to price.  The box (range) that I'm looking at now is 1540-1600.  Ideally, I'd like to see a weekly close that exceeds one of those numbers and holds.  Nothing else matters.  If I were a betting man (and I am), I'd bet that we close down.  However, I'll keep my opinions out of this one and let price decide where it wants to go.

Here's the chart and box (range) highlighted in blue outline:

For more of my charts and to read a disclaimer, please see my public chart list on stockcharts.com:
http://stockcharts.com/public/1109955

April 13th 2013: News flash! Gold miners are in trouble!

In case anybody missed it, gold miners are in trouble.  Energy costs are still relatively high and gold is getting cheaper.  Their costs for getting the metal out of the ground are going up - not down.  Ever helpful Goldman suggested shorting gold this week (but not 300 pts ago).  To make matters worse, large holders of gold and GLD (ex. John Paulson) haven't sold enough and GLD itself is selling into the market to match its index.  GLD has become the 6th largest holder of gold in the world behind France.  Canada, which has been historically known for gold production, has a paltry 3.4 tons of gold in reserve.  If GLD with 1158.56 tons of gold gets whacked 3%, that's equivalent to forced selling of ~34 tons of gold (or 10X Canada's entire holdings!).  But that's old news....

The big question is where do we go from here?  My short answer:  down (see chart)

Here's why:

• We've broken a huge trading range to the downside that took ~3 years to construct.
• There's an obvious head and shoulders pattern which projects much lower.
• In terms of historical similarity, the peak of 54.69 in Oct 2012 looks similar to the peak of 50.70 in July of 2008.  Using similar price destruction estimates, projects to ~17.5(!)
• We're into the monthly bar of the 15.48 low in Oct 2008 and often that leads to eventual testing of the low.
• The US dollar was down this week.  Imagine how much gold would be down if the dollar was actually up(!).  What if it gets back to the old highs of $88-$89??

Here's what we need for a bottom:

• ~1 month of rapid price destruction where almost every single day the price of GDX is lower.
• Margin calls.
• Large holders of GLD to throw in the towel.
• GLD to get materially smaller.
• Central banks to start buying heavily to counteract the compounding effects of GLD.
• Calls of removing gold from "diversified" portfolios
• Gold miners to announce they are stopping production en masse.

April 7th 2013: Japan declares war on its own currency!

Does everyone hate their currency?  It certainly seems that way - at least in governments around the world.  The citizens that elect the governments might say otherwise, but I digress...

This week, Japan unleashed the world's most aggressive easing policy (so far).  They plan on DOUBLING their money supply from 135T YEN to 270T YEN(!) by December 2014(!).  In GDP terms, this equates to a 1% increase every month this year and increases to 1.1% every month next year(!).  To put this in perspective, the US is currently expanding its already HUGE balance sheet by 0.54% every month.  In short, Japan has just announced a 2-year war on its own currency and it won't quit until it achieves 2% inflation.  This is big news for Japan and currency markets, in general.

So, how could you play it?  Well, you certainly could go short the yen.  Either in the FX market or by an ETF like YCS (just be aware of the tax complications).

Another option is with a currency-hedged Japan ETF like DXJ.  This has been a popular trade already this year - especially with hedge funds.  Last week, we had a shakeout in DXJ which quickly retraced and closed higher after news from Japan about their new anti-Yen policy.  My take is that governments are bigger than hedge funds and this already crowded trade can get even more crowded with the government behind the move.

Let's go to the chart.  I already noted the shakeout which set-up the bottom edge of a nice box.  We reversed sharply on the news and had follow-through the next day to close up and out of the box.  In an uptrending market, upside box breaks act as continuation patterns and target a box length move to come.  That equates to a price target of $47.85 where I would lock in some gains and let the rest run with a stop.

For more of my charts and to see a disclaimer, please check out my public chart list at stockcharts.com:
http://stockcharts.com/public/1109955

Here's the chart:

April 1st 2013: Boring is the new high-beta???

I'm sure that I'm not the only one that's noticed that boring stuff is on a tear in the market.  Staples, Health-Care, Utilities, Low-Vol.......they're all red hot.  These are the sectors that are driving the $SPX higher - not momentum, not growth - boring is the new high beta.

Generally, at the start of rallies, we see things like small caps, the nasdaq, recent IPOs, etc. leading.  The fact that we're seeing boring stuff leading means that we're at the tail end of this leg higher.  To be clear, I'm not calling a top.  I plan on enjoying the ride while it lasts and focusing on the strongest sectors in the market place.

I could put up ratio charts of the SPHB:SPLV or XLP:SPY, but I think this one says it all.  Almost every week, the XLP is higher regardless of the noise out of Europe or political hand-wringing in the US or real estate bubbles in China.

Here's the chart:

To see more of my charts, please visit the public chart list section of stockcharts.com and see my disclaimer there, too.

http://stockcharts.com/public/1109955