$INDU update

The market generally moved sideways all day, but in the end sellers took control and the DOW lost 96 points to close at 9744.  This is the lowest close for the index in 2010.  We will see what tomorrow brings.  The DOW is getting extremely oversold and a bounce is imminent.  But will it come after a bit more carnage remains to be seen.  I will continue to watch from the sidelines even though I am extremely tempted to go short on the market.  But the oversold indicators are keeping me from taking such a position.  I will continue to stay on the sidelines and keep an eye on the leading stocks to see if a buying opportunity presents itself. 

Crucial point for $INDU

I apologize for not posting anything for about a week, but have been busy with travel.  Fraz (my youngest brother) got married in Birmingham, AL so I have been busy with travel and celebrations.  And the head and shoulder pattern was continuing to form so there were no new stock moves to make.

The head and shoulder pattern I mentioned earlier has now been completed.   Today the Dow Jones Industrial Avg closed at 9870.  Some significant points to note are: 

1) The DOW has now closed below 10,000 again.
2) We are now resting at the neckline of the head and shoulder pattern (weekly charts).  A break below here could signal a significant move to the downside.  If the market finds support at this level, we could see a nice upside move.
3)  An upside down cup and handle formation is now complete (Daily charts).  A break downward through this level can be extremely bearish.  On the other hand, if the market finds support here, we could then work on an upside move and form a double bottomed cup pattern. 

I cannot stress enough that we are at a crucial juncture in the market.  I have noticed in the past that generally the market will drop thru a support level to trigger stop loss orders (since they are generally set slightly below the support levels).  Whether or not buyers step in later will determine if we get a turning point and whether the support holds.  The safe thing to do now is to remain on the sidelines for now and let the market sort things out.

If you remember, in my May 25th post I presented two scenarios for the pull back.  A $INDU of around 9427 or 8308 (rough estimates).  Looks like we might be getting close to testing the first of those levels soon. If the market does drop to that level then bounces back, the next level to watch will be the 9870 level to see if the market can break to the upside thru the neckline or get rejected at that level (which then makes a test of 8308 very likely).

Good luck in your trading and keep your capital safe.

Market Pullback

Well, the head and shoulder pattern did not fail us this time.  We did start a retraction and are heading towards a test of the neckline around 9950 - 9850 or so (ballpark).  The big question is whether we will get support at the neckline (I don't think it will be an easy break to the downside).  If the market does get support at the neckline, we could see another rally.  We are also testing the lower boundary of the bollinger bands.  If the market does not find support at the neckline and breaks to the downside, we could easily head back to the 7800 level for the next major support level.   But that is to be analyzed later.  At this point, I am still out of the market and watching and trying to determine where we are headed (obviously I am bearish at the moment).

Head and Shoulder point

DOW is approaching the right shoulder point in a head and shoulder formation.  Keep an eye on the market.  We may start seeing a pull back soon.

Rally ahead ?

Despite the bad news, the market managed to eke out a victory and finally had a week where it closed with a gain.  In addition, we had a positive Friday.  Looking at the daily chart, you can see that we have finally breached the downtrend line.  Now to see if the market can hold above this point.  Sometime the market will breakthru the downtrend line but then continue to move down but getting support from the continuation of the previous downtrend line extension.

We did, however, heard some more bad news over the weekend, so it would be interesting to see how the markets fare on Monday.  

Looking at the weekly chart of the DOW and assuming I am correct about the potential formation of a head and shoulders pattern, we should see an uptrend in the short run until we peak back and then pull pack to check the support at the neckline.

Again, this is mere speculation until the market actually does form the pattern.  We could just turn around and go up as easily. 

Side Note:  Real Estate thoughts
I have been wondering about a potential side effect on the resort real estate market.  There are a lot of people who are upside down in their mortgages on Florida property.  With the oil beginning to show up on the Florida beaches, does it mean that property values will drop farther in the short term?  With people canceling their vacation reservations, the owners who are relying on the rental income to pay for the condo fees, etc. will be farther in the hole.  This could bring more foreclosed properties to market.  The only bright side I see is that majority of the rental income is made around spring break and that time has already come and gone for this year.   Also, hopefully the owners are on the ball and start filing paperwork for lost revenue against BP but there is no telling when (and if ever) they will get paid.  If you are in the market for some vacation property, this could be the opportunity you have been waiting for (buy when no one else wants to).  That even brings up an even more interesting question.  Should you be looking for cheap lots in Detroit that you can turn into a green plot and sit on for a few years to see if Detroit can recover?  With the auto makers making profits now, maybe the Detroit economy will recover.

Market update

I continue to watch the market for signs of a reversal.  Then you get a one day, two day rally, and then WHAM, down again.  Last couple of days, the market was up on high volume and down on low volume.  If the market indeed is forming a head and shoulder pattern, we should see a rally soon for a few days.  However, it seems as if we may visit the 9500 mark soon (near the first fibonacci level target - see post from earlier about fibonacci targets).  Seems like there is no good news to be had.   Dark clouds continue to gather over the Euro with various governments in trouble.  The oil continues to spill and BP continues to go down.  Why did I never consider buying puts on BP on the news of the spill, I don't know.  I have noticed that when you are in a bullish mode, its hard to switch and go into a bear mode on a dime.  Even if you sell all your long positions, its hard to start going short.  I continue to watch Chipotle.  It is showing great strength but my indicators are starting to predict a drop.  Yet I cannot bring myself to go short on this stock.  With Chipotle announcing the opening of their first European store, they will be entering a new growth phase in Europe (remember Starbucks in its heydays).  I will continue to look for the right entry point in this stock and get back in when the market changes direction. 

Has a new market rally started?

Markets have rallied well off the lows in the last few days.  Even though we didn't quite stop at the 9500 mark for the DOW, if you look at the chart with the triangle formation I posted earlier, you will see that we approximately got a bounce from the bottom.  So now what?  The markets have been strong last day or two.  And are showing a bullish bias today (so far) as well.    I was looking at the weekly chart of the DOW and what struck me is that we could be in the beginning stage of the right shoulder formation of a head and shoulders pattern.  If that pattern does form, we could go as high as 10,900 and then back down to the test the neckline.  It might take the market a little while to do so.  I am going to have to stay out (except for dabbling here and there :-)  and see what transpires. 

On the other hand, looking at the daily chart, we are approaching a test of the downtrend line around 10400.  We'll have to wait and see how the chips fall. 

Update:  To highlight the importance of limiting your losses, I will share my latest losses with you.  As you are aware, I sold all my positions except one (BCSI).  While I was on vacation, some news hit and the stock plummeted.  I am now staring at a 35% loss instead of the 8% loss I should have taken (Actually, if I had sold it when I sold the rest of my portfolio, I would have netted a profit, or at worst, broke even if I had delayed the sale).  BCSI is a company with the history of strong earnings and growth.  However, this shows that no stock is immune for a pullback during a market pullback.  We used to have a saying in the good old days of the late 90s.  In the event of a market decline, even Dell will fall eventually.