Dollar, Euro, the market and the commodities

There are conflicting signs in the market.  The news is very bearish on the Euro with Greece in the headlines nearly every day.  A drop in Euro would indicate that a rally in the US Dollar which is bearish for commodities.  But looking at commodity producers (e.g. copper), the charts are indicating a strong underlying buying pattern while the stocks are in a base (pretty much the same across the board for multiple stocks).  Just looking at those charts, I would speculate that a big rally in commodity stocks is expected and some big players are loading up on the stocks.  Yet a rising dollar is bearish for commodity stocks.   This market is getting confusing.  Yet I still think I am right about the 5th wave being under way.  That would set the near term (<6 wk) target for the DOW to reach 11,500-11,700 range with 13,000 being a distinct possibility.  I still like Chipotle (CMG) and have a price target of 140.00.    Assurant (AIZ) has overcome resistance at 32.75 and started moving up.  I would expect a price target of mid 40s if the market does not peak in the meantime. CELG is showing a short term peak, yet the long term trend seems to be intact at the moment.  I have a price target of 70 on CELG with 75 a possibility.  There were big rallies in overseas markets, and I expect that to carry into the US markets today.

(Please note that I own all the stocks whose tickers I mentioned above).

ETrade - ETFC

Ah, the stock that so many hopes are pinned upon.  ETrade recently announced a reverse stock split (10 to 1) that is to take place, if approved, sometime in the future.  I generally tend to divest any stocks that announce reverse stock splits, just because it allows short sellers much more room for profits.  In my personal experience, all my stock holdings that announced a reverse stock split are no more (e.g. Vertical net (VERT), Nortel Networks (NT), etc.).

But the chart for ETrade looks interesting.  Indicators are showing a positive bias at the moment (in long term charts) The stock bears watching closely.  It is in a triangle formation.  A break to either side can be strong and big (up or down).  Short term charts don't seem to be very bullish.  But the weekly charts are signaling a bullish bias to the stock with a lot of buying.

The Psychology of Stock Ownership based on Technical Analysis

Have you ever wondered why is it that when you are looking at a stock to buy and evaluating the charts, everything looks good and screams a strong buy.  But as soon as you buy the stock, and the stock stops moving up, all indicators look like you should get the hell out of your position?   It is the opposing forces of greed and fear that drive this emotion.  When the stock is moving up, greed takes over and everything looks good so you pull the trigger.  If then the stock pauses and stops moving up (even if it goes sideways), all of a sudden the fear starts dominating and everything starts looking negative.  For this reason, you should write down why you entered a position and what is your expected time horizon.   For you can enter the position with a 3 month price target, yet close the position a week later because your "gut" tells you to do so.  Sometimes you will be right, but often you might be wrong.  Case in point, I entered a long position on HIG (Hartford Financial Services Group) around mid July 2009 around $11 per share.  (1000 shares).  I started second guessing myself when the stock didn't move for 2 or 3 days and ended up selling 10 calls for $1.00 each.  Then I watched the stock take off and work its way to $20+ while I netted a measly $1 per share.  Don't get me wrong, I made money, but I missed out on a lot more money I could have made due to the butterflies in my stomach. 

Currently, I am experiencing this effect with CSTR (CoinStar).  I bought it knowing that the move could be small yet rewarding in the short run.  Today when I see the market moving up and CSTR barely registering a move, I start sweating the potential pull back the stock faces once it runs into resistance.  I guess I will have to wait and see how it pans out and whether I decide to sell my position.  I went thru the same jitters with ORBK.  Bought the stock with a longer term horizon and somehow kept myself from selling it in spite of the small pullback and the jittery feeling.  As of today I am up around 8%.  I initially thought the stock had the potential to move to $16-17 which is why I bought it, yet now I find myself wondering if I should take my gains and run.    Such is the battle that goes on in our head, between greed and fear...

New Picks

Well, my portfolio holdings of Ford (F) and Celgene (CELG) continue to perform well.  I also added a position of CoinStar (CSTR) today.  CSTR is a vendor of the coinstar machines (change) and the popular RedBox DVD vending machines.  RedBox has been so successful that hollywood recently requested RedBox to not rent movies in the RedBox kiosks for 30 days after a DVD is released.  The chart shows some room to run.  Stock will run into some resistance at 35/36 area.  I do plan to take profits at that time and wait for the stock to breakthru the resistance before retaking the position.

Market shows strength

After spending most of the day in the red, bulls finally took charge and the market (DOW) pushed into positive territory before the close.  Nasdaq also rallied but closed with a small loss.  The indicators still show a bullish bias, and I still think wave 5 is in the works.

A new stock that has shown up on my radar is POWI (Power Integrations, Inc.)  It has managed to break thru to the upside from a fairly long base.  If I wasn't so convinced that a near term market top is imminent, I would have added it to the portfolio.  But I will keep an eye on it to see if a trading opportunity presents itself.

EMC

EMC has recently broken out of a very long (2 yrs) base.  Indicators seem to be confirming the move.  Next target would be the $24 price point.  EMC is currently trading at 18.78 

EMC has really expanded their portfolio of products in the last few years.  Notable purchases include VMWare (trades as a sep. stock but is around 90% owned by EMC), Document Sciences (premier provider of output solution, Captiva (provider of image scanning and recognition).  In addition, EMC rules the space of Enterprise Storage.  However, this stock moves pretty slowly.  So it would do better as a hold in a long term portfolio than as an options play.

Market taking a breather

After the market broke to the upside thru resistance on Friday, its been taking a breather and just biding its time.  I cannot reiterate often enough that this market bears close watching.   A strong wave 5 move can easily take the DOW to 11,700.  A failure to make this move could result in a double top.  If you subscribe to the Elliott wave theory, then Wave 5 is still in its infancy and can easily go to 11,700 or higher.  But if the market does reach that point, I intend to start raising cash.  The dilemma here is that several leaders are showing topping signs yet other stocks are making sound bases.  Lot of stock bases are now 6 weeks or shorter which also indicates that we might be approaching a market top.  Yet over time I have learned that when its time, you need to watch the market closely and not hesitate to pull the trigger if it turns against you.  But moving out prematurely can lead to missing out on solid gains.  (Remember, wave 5 moves are fast and furious, netting significant gains in a very short time).

End of Day Analysis

Well, it was a pretty bullish day overall.  I would say we are definitely in a market rally for now.  In a bull market, the market will generally close up on Fridays (meaning that investors are willing to take the risk of holding positions over the weekend - In a bear market, you will generally see the market close down on Fridays).    The million dollar question for now is how far the 5th way will go.  The leaders have resumed an uptrend after about a 6 week base (that is the minimum length for a stable base).  However, I like to see around a 12 week base breakout.  This just adds to the cautious optimism I am advocating.  I am still around 60 percent in cash with only 40% invested in the market.   Intuitive Surgical (ISRG) got hammered after a sell rating by an analyst.  However, the stock found support at the uptrend line and actually managed to recoup about 50% of the loss from yesterday.  Hoping that drop shook out the weak holders and the uptrend will resume.  But watch carefully and don't let your gains turn into losses.  Although I wanted to hold onto the EK stock, the overhead call resistance made me nervous and I sold April covered calls at $6.00 for 0.45.  If the stock gets called away, I will make some money.  If not, I have lowered my cost basis.

Eastman Kodak (EK)

Eastman Kodak is an example of a company that failed to respond quickly to the disruptive technologies turning its industry on its head.  EK went from competing with Fuji for market share in the film market to competing with every digital camera manufacturer out there, and has been bleeding money ever since.  However, in the last earnings report, they seemed to have turned the corner and blew out all earnings estimate.  For the last quarter, median earnings were estimated at 0.18 and the high estimate was for 0.31 per share.   EK reported earnings of 1.08 per share in the last quarter of 2009.  Looking at the share price chart, EK is in a cup and handle formation (currently in a very tight handle).  There is major overhead resistance in the form of a large number of open calls at the $6 strike price.  But if EK can breach this overhead resistance, the scamper to buy stock by the people who have sold those calls could apply additional upward pressure on the stock price.  The stock is currently trading a hair below $6 per share. 

End of Day Analysis

Market action seems to indicate that the market is now in an uptrend again.  We should see some sharp gains barring some seriously bad news in the market.  My assessment is still that we are in the final leg of the bull market run that started in March 2009.  I have managed a 200% return in the last 12 months while never being invested more than 50-60% in the market (in retrospect, that was a mistake but I was nervous :-) 

Stocks of note are Intuitive Surgical (ISRG) that has just broken into a new high territory, Chipotle (CMG) that is attempting to reach a previous high set a long time ago, F (that broke thru major option related resistance on Monday 3/1/2010) and Celgene (CELG) that has broken out of a base recently.  (I own all these stocks, except Ford which I sold for a 100 percent gain on Monday.  I do expect to reenter my position in F in the very near future after watching how it behaves).  My indicators are not flashing any buy signals for Apple (AAPL), yet it should be noted that in the last run of the market, majority of the indicators that work in the early waves do not flash buy signals, yet the stocks continue to move up.  So there is a divergence in the stock price and the indicators.  The battle between fear and greed is at its best in wave 5 when the most profits can be made in a short time span. 

This rally has been amazing since throughout the rally, the market accumulation distribution rating has remained low, and even dropped significantly in the recent wave 4 pullback.  Surely, no one can accuse the market of irrational exuberance during this bull run. 

Elliott Wave Analysis of INDU - 03-02-2010

Elliott Wave Analysis

Well, the anticipated wave 5 of this bull run might have started. Last night's analysis of the market showed a nice follow thru and quite a few breakouts into new high by market leaders. However, most breakouts are coming from 6 to 8 week bases which is not very encouraging. Wave 5 breakouts can result in large gains in a short time. But you must be able to watch closely and take profits since the peak will be nearby. (What is perplexing is that there is still too much money on the sidelines - although that may be what makes the 5th wave strong and fast moving). Still targeting around 11,500-11,700 as targeted range for the DOW but let the market action dictate the sell point. Remember, if you don't sell at the top, don't wait for the market to reach it again in order to sell - It never does in the short run (after a market top).