Market update - 08-30-2010

The market continues to be weak.  However, the fact that on Friday, the DOW climbed back above 10,000 can be seen as an encouraging sign for the bulls.  It appears that the bearish sentiment is climbing steadily.  Most of the hedge funds are pulling money out of equities and investing in bond funds.   I am not quite sure whether we are seeing a bearish extreme quite yet, but we might be close.  Maybe the bearish extreme will be seen in Sep or October, followed by a strong rally (since there is so much money that is not in the equity market).

One other pattern I have noticed is that I have been using a 40 day period for my bollinger bands with a 150 deviation and a 20 day period for my moving average.  If you notice in the daily and weekly charts, whenever the 20 day moving average crosses below the average of the median line of the bollinger bands, generally there is a long decline.   However, the market stochastics (overbought / oversold) for the daily charts are showing an oversold condition peak might be near, but the weekly stochastics have some more room to run (lending support to a sharp sell off possibility in the next few weeks).  (Please note that the charts are using Log scale rather than a linear scale). Currently, in both daily and weekly charts, the 20 day/week moving average is below the 40 day/week bollinger band median average indicating a downward bias to the market direction.

The stocks with good patterns of consolidation are Apple (AAPL) and Chipotle Mexican Grill (CMG).  Intuitive Surgical broke to the downside recently.  I will continue to monitor it and hopefully find the right spot to enter the position.  Overall, I would continue to monitor the market and see if we get a big sell off day soon.  If we do, I may reenter the market with up to 25-50% of my cash.

Market update - 08-24-2010

The market continues to drop as bad news continues to overcome any Merger and Acquisition euphoria that may attempt to rally the bulls and lift the market.  Money continues to leave stocks and might be moving into bonds (causing some to forecast a bubble in the bond market).  If a bubble in the bond markets is forming, there might be opportunity to make money on the downside once the bubble bursts.  (By being short on Treasuries, for example).  I am researching some ETFs that may have such a focus.  Of course, such ETFs have been losing money for their investors over the last few months. 

I continue to stay mostly in cash.  The only new position I have opened lately is Nvidia.  The action is encouraging at this time.  The downtrend line has been broken to the upside.  Also, the key fundamental news driving this change in trend could be that Nvidia is entering the smart phone market with a dual core processor.  Which means they will be going up against QualComm's Snap Dragon processor which is a popular processor in the latest generation of Android phones.  LG has committed to using the NVIDIA Tegra 2 processor in a line of upcoming smart phones.  At the same time, QualComm announced that a new dual core version of the Snap Dragon processor running at 1.5 GHz will be available in the 4th quarter.    So it remains to be seen whether NVIDIA can successfully execute the mobile processor strategy and take some of the market share in the smart phone market.

For now, I am looking for a target of 13 to 13.50 for NVDA to take profits. 

As I have mentioned before, the general trend of the market is not to be ignored.  It doesn't generally matter how good the prospects for a stock are.  If  the market is headed down, it is likely that gains cannot be made to the upside since 3 out of 4 stocks will follow the market direction (up or down). 

Another stock that I am looking at is First Solar (FSLR).  It may be turning the corner and entering an uptrend.   I will monitor and see if an opportunity to profit presents itself.  But with September fast approaching, maybe sitting on the sidelines with cash is not a bad place to be...

Market watch continues

As I write this, the DOW is down over 162 points and testing crucial support level.  Since we had been in an uptrend and this is option expiration week, volatility is to be expected.  I don't like the action in many stocks but I do like the price action of Nvidia and the indicators are showing a positive bias.  I had opened a position in NVDA stock a few days ago, and today I added a new position of Dec 10 call options for 0.96  despite my apprehension about the approaching September.  I was encouraged by the fact that NVDA indicators had bottomed out, the stock followed thru today to the upside on an earlier move and that the stock was up significantly despite a down market. 


On a side note, I expect my out of the money call options on S, ATVI and F to expire worthless tomorrow.

Points to watch

The DOW has dropped over 3% in the last week.  With September fast approaching, the question is what will the market do.  September is historically the worst month of the year for the stock market.  The market needs to be watched closely.  If the rally is to continue, the DOW must breakthru 10,500 soon, and 10,750 or so to confirm the continuation.

Read an interesting article about an indicator (Hindenberg Omen) that claims to predict market crashes (although it has successfully predicted market crashes 1 out of 4 times).  Apparently, the indicator is now signaling a market crash.  Even if a crash doesn't occur, the indicator could mean a decline in the months ahead.
Check out the article here. 

There is also a good explanation of the indicator at Wikipedia.

Wow - two positions in a row where I got out a couple of days too early.  The first one was Goldman Sachs (GS) calls.  Got out in the morning and by that evening, the options were worth 3 times as much.  Also, a couple of days ago, I sold my NetFlix calls for 1.10 - today the same calls were fetching over $5.  So correct picks, wrong exit times.  I am going to have to go back and reevaluate my holding strategy.  Don't get me wrong, I made money on the NetFlix options, but I could have made a LOT more.

Market dropped like a rock today.   The DOW was unable to break to the upside thru the resistance point I talked about earlier around 10,600-10,700 range.  It peaked its head above then fell.  This could be the top of the right shoulder in a head and shoulder pattern (Weekly chart) and should be watched closely.   I am not trying to predict anything here, just let the market action do the talking and see how the market does by the end of the week.  If we get most of the loss back by this Friday, then maybe this market has more strength than I give it credit for.

Postion update

The ATVI "gamble" did not pay off, and I lost most of the pennies I put in there.
The NetFlix calls jumped up again and I closed those out at 1.10 per share adding to the gains made from the put side of the straddle.
NVDA continues to inch upwards.  But its not moving fast enough.  I'll watch it for a bit longer but may cash out if the stock doesn't move soon. 
F is still hovering in the same range.  Breakout should occur soon (to the top or bottom). 

Stock to watch - Genzyme (GENZ).  Genzyme has had a big run up on positive news.  Daily pattern looks like it is breaking down, but the weekly chart may just signal a pull back.  Watching this one closely.   It would be a big money maker if we can predict the correct direction.  If I had to guess, I would be bullishly biased and the stock appears to be starting the formation of a handle on a cup with handle formation.

Market Update - $INDU continues to act strong on lower volume.  Continue to watch to see how things develop.   

New positions

Ford (F) looks promising in the short run (and perhaps for long term as well looking at their product pipeline and increasing market share).  Buying Aug 13 calls (08-21-2010 expiry) for around 0.45 per share.

Update:  02:42 pm CDT :  Buying Aug 12 calls on ATVI (Activision) for 0.26 cents per share.  Earnings coming out tomorrow.  After a strong Electronic Arts announcement, Activision may also have good news.  Expected new announcements about call of duty and other add ons (read money makers).

Update:  02:59 pm CDT:  Buying some Nvidia (NVDA) stock at around 9.30

Close Goldman Sach's position

If you entered the GS position with options, close it out for a 100% + gain.

Position Update

Didn't realize Goldman Sachs now had weekly options as well.  I guess I wasn't paying attention when I purchased the GS 155 calls - Got the 08/06 expiration instead of the 08/21 expiration that I was going for.  Looks like we have to pay close attention to options symbols because of the Weekly's now.  I'll chalk that one up to a lack of attention and hope that GS gets a nice jump tomorrow :-)

Rally for real?

Markets did run into resistance this morning, and are slowly starting to come back.  But I just wanted to share that something is still making me uneasy in this rally.  I went back and took a closer look at the charts.  This rally is occurring on low volume.  It even seems lower than the average volume.  Down days are on higher than average volume and up days are on lower than average volume.  Top that with Secretary Geithner's comments about unemployment will continue to grow and the slowdown in GDP and the possibility of a double dip recession, and I start getting real nervous. 

In argument for a rally, there is the easing of the Fed.  If easy money continues to flood the market, it will more than likely end up in the stock market since there is not much of a return to be had elsewhere.  But not quite sure how high this rally can take us without more volume coming in.  Mutual Funds have now had a net outflow for 12 weeks straight.  That does make an argument for quite a bit of money on the sidelines, but it still makes me nervous. 

Market Update

The markets are acting very strong and the summer rally continues.  The DOW overcame the first resistance point and closed above the last high of 10595 set on 6/21/2010.  It is now likely that the market will try to test the previous high at 10,900.   With the Fed pumping money into the economy, and interest rates floundering, we are likely to see the market go up.  However, we are right around the point where we could see resistance.

I might slowly increase my exposure in the market if the bullish trend continues.  As I mentioned in an earlier post, watch IBM closely.  Its itching to break into new highs.  I would wait to buy until it does set a new high on high volume before buying.