Fibonacci retracement levels

Using a low of 6495 for the DOW and a high of 11,240 we can calculate the Fibonacci retracement levels. The two likely scenarios are:

11240 - 6495 = 4745
4745 * 0.618 = 2932

First scenario:  6495 + 2932 = 9427 <= potential retracement level = we almost got there today.
2nd scenario:   11240 - 2932 = 8308 <= potential retracement level in 2nd scenario.

Note: My market low and high values are approximate. I was too lazy to try and look the exact numbers up.  But I am still not convinced that the bull market has yet returned despite any rally we might see.  I might consider buying some puts on the market indexes in the neighborhood of 10600 - 10,800 if we get there.

Market manages to move back above 10,000

The bulls actually took control today and the market regained most of its losses and the DOW managed to close above 10,000.  I took a second look at the chart, and 9800 (approx) was a major support point that is crucial.  Its a good thing that the market found support.  Of note is that the volume increased considerably over yesterday.  This is a good sign and we are looking for a follow thru day (another big day with high volume) to confirm a potential trend reversal.   Sprint showed a lot of strength through out the day and closed up a lot after the market reversed direction.  At this rate we will hit the $6 target relatively soon.  Wow, only a couple of days have gone by and greed and fear have already started battling it out.  Should I sell when the stock hits 6 or should I wait to see if it will make it to the 9-10 range?  Should I sell at 6 in anticipation of a pull back?  Decisions, decisions, decisions...  I am going to have to take another look at the rest of the market to see if any other stocks are worth risking some money for.  I am still skittish but do expect a mini rally to take place.  Will continue to wait and see for now.  I may not have many updates for the rest of the week.

Additional Thoughts:  Pull backs generally exhibit a 5 wave structure.  Although 3 wave pullbacks are possible, generally after a 5 wave run up, you will see a 5 wave pullback (A, B, C, D, E) before the uptrend resumes.  At best, we are entering wave D, at worst we are just entering wave B.  I do expect to see a bullish move in the market over the next few days.  But I wouldn't bet that the trend has reversed yet until we see some more evidence.   

Sprint (S)

It feels good to have given a buy on Sprint before the big boys.  I recommended a buy on May 13, and yesterday Goldman Sachs (and another broker) upgraded Sprint to a buy as well with a target of 6 (my target as well).  The options are nicely in the money now and I hope to hit 6 soon to cash out.  Since I have Nov 4 options, there is plenty of time left on these calls.

The market is also behaving as I expected and continues to drop.  We are at around 9865 for the DOW and the predicted drop for the expanding triangle should take us to around 9500 or so before long.  The question is whether the market will find support there or not.  I expect there would be some kind of bounce, but with all the negativity about the EU, the chance of the DOW breaking to the downside is pretty good and that will probably take us back into a bear market zone.  Let's see if we get some better news about the EU and maybe then we can find some support for the markets.

Almost end of day - 05-20-2010

Luckily I have been pretty distracted by Google IO.  It doesn't hurt that we have been out of the market for a while now.  Watching the market decimate your portfolio is not fun.  The DOW is down over 300 points as we speak and I can only imagine that tomorrow being Friday may not be a good day for the markets.  We have broken support around 10200 and the DOW must recover that point fairly soon or we would be testing the previous low.

Seen some really cool upcoming technologies for Google TV.  Major players are Google, Intel, Sony, Logitech, Dish Network, Best Buy and Adobe.  Keep these guys on your lists to watch.  The way you watch TV now is about to change dramatically.   It was a great live demo and, for the first time, the ability to jump seamlessly from TV to YouTube to Hulu, etc. seemed effortless.  Look for equipment to show up this fall.   Looks like I have to hold off on buying my next tv for a bit (although since I have DISH and a PS3, I may not need to buy an intelligent Google TV.   I am definitely going to be watching these companies for good entry points.

Also, Google gave all attendees the new Google HTC Evo phone from Sprint.  Beautiful large screen, 4G, etc.  I still feel that Sprint is going to provide a nice return in the nearterm and I will continue to hold my position in Sprint (and may even add to it if I get a bargain buy).  Hopefully, I can make the money and get out before the earnings release.

I will try to post some more detailed market analysis next week.

Before market open - 05-18-2010

Yesterday's market action appeared to be encouraging with the markets recovering most of their losses and closing slightly in the positive.  And we may get a rally today as a result.  But the volume was less than the prior day's volume indicating to me that its still doubtful whether the market has turned the corner.   In fact, I was looking at the chart of RERFX (American Funds - Euro Pacific) - a mutual fund that one can own for exposure to the emerging countries and European stock markets, and it appears to be completing what appears to be an upside down cup and handle formation.  I wouldn't expect the market to just roll over so we will probably see a rally here. If it does break thru to the downside, that may indicate further weakness in the market.

So we are probably looking for the market to rally in the short term, but I will continue to watch from the sidelines as options expiration approaches this Friday. 

Update on Sprint-Nextel (S) and the market view

Friday's action for the market was pretty bad and we saw distribution with a large drop.  The DOW lost 163 points and Nasdaq followed suit with a 47 point loss.  In the face of this major distribution day, we saw Sprint regain most of its loss during the day by market close.  Also, the drop came on declining volume.  That is pretty encouraging in my opinion.  I will continue to hold my position for now and see how it plays out.  I shouldn't need to remind you that in a bear market, 3 out of 4 stocks decline.  Trying to find winners to the upside is very difficult in a bear market since the odds are stacked against you that you will be wrong 3 out of 4 times.  We are not quite in a bear market yet (usually defined as a 20% decline from the top), but we are definitely in a correction.  Markets are also nervous about the financial regulation legislation in the works.  Once some kind of financial regulations pass, that would help eliminate some of the uncertainty from the market.  In the meantime, the oil continues to spill unchecked into the Gulf of Mexico and the economic and environmental damages continue to mount.  (A new estimate puts the spill at 70,000 barrels a day.  To put that into perspective, if that is true, then we have the equivalent of an Exxon Valdez oil spill every four (4) days).  Folks, despite everything you might read about BP stock being a bargain, I wouldn't touch that stock with a 10 foot pole until they cap the well and we have some idea of the damages they will be facing.  I would not be surprised if the stock tests the previous low set in 2009. 

One stock to keep an eye on appears to be IBM.  It is trying to break out of a base, but the market action seems to be keeping it in check.  When the market finally turns, I wouldn't be surprised to see IBM as part of the leader pack.  Remember, market pull backs are a great time to hunt for new opportunities and identify stocks that may break out as the next bull run starts.  Again, I am not advocating going out and buying the stock now because I am bearish on the market, just pointing out that despite all this negative action, IBM is still showing a positive bias. 

While the market is in a downtrend, you may also notice the pattern that the market may rally early in the week and lose ground towards the end of the week.  This generally happens during times of uncertainty where traders don't want to hold positions open over the weekend since there is a lot of time where negative news can decimate a stocks value.  When the tide starts to turn, you may see the opposite when people are more willing to hold onto their stock positions over the weekend.

Have a great weekend (or whatever is left of it). 
Updates next week might be sparse due to the busy week I have ahead of me.

Are we headed for a bear market?

Well, that is the million dollar question, and I wish I could answer that with certainty since then I could definitely make a million dollars.  Just looking at the daily chart of the DOW (see chart), it appears that we may be forming an expanding triangle.  Now expanding triangles are bearish by nature.  If we do stop at the lower boundary, we are looking around 9500-9600 for the DOW.  But if we fail to find support at 9500, there is no telling where the market will stop.  It could test and get support between 8000 and 8500 or it would proceed to the previous low around 6500.   Only time will tell.  I find optimism in the leading indicators from the economy that tell us that the US economy is growing again.  Yet I am afraid of the potential inflation lurking around due to all the liquidity and deficit spending around the globe.  The Hang Seng index is now officially in a bear market (more than 20% off the peak).  I will continue to watch this market for positive signs, but at the moment I am going to continue to hold my mostly cash position.