Friday, February 26, 2010

25/02: Shares bounce decisively off intra-day lows

O Goldman, who art on Wall Street...

So might begin my inspired chant of contrition to those crazy enough to read these pages. (Thankfully there are very few of you.) More frequent posts are forthcoming. Oh yes.

Markets recorded a volatile session on Thursday, with the Dow initially free-falling nearly 188 points before paring losses to close down 53 points, or 0.5%, at 10,321.

EUR/USD trade proved dramatic, with the European currency declining to an intra-day low of 1.345, a level only a whisker above last Friday's touch of 1.3444, which represents the currency's nadir since May 2009. Of course, fears of Greek default and spillover into other EU weak links are the drivers behind Euro weakness.

Gold futures also had a notable session. Front-month contracts kissed a critical support area around $1090, a support that takes the form of a descending trendline that begins at price action on December 3, 2009 (a day after the market's peak), incorporates the upward reversal peaks in mid-January, neatly contains the highs of February 3rd, and beautifully underpins support of February 17th, 18th, 24th and 25th. I anticipate either a durable bounce upward (if the Greek situation should become resolved and leads to dollar depreciation), or a downward break (if Greek problems re-intensify).

I have been trading, among others, MT (Arcelot Mittal ADRs) and AKS (AK Steel), perceiving recent selling pressure to have reached durable support. I entered both positions earlier this week, and while yesterday's sharply lower open brought losses, the ensuing turn-around changed these to slight gains. As the overall market and steel were both trading into significant resistance off 5-day charts near yesterday's close, I sold both positions near yesterday's respective intra-day highs.

Good luck today, traders of the world!

Thursday, February 4, 2010

Wednesday, February 3, 2010

02/02: Risk trade further intensifies

After an uncertain start of trade, markets eventually shifted into higher gear and placed further distance between their new-found bullish spirit and January's pronounced correction. On the day, the broad-based S&P500 gained 1.3 percent to 1,103. The DJIA propelled forward by 1.1%, while the NASDAQ languished with a +0.9% return. A 10-day chart of the S&P500, courtesy of, follows:

My own trade on Tuesday, 2/2 focused on five different securities. Forgive me, dear reader, for presently doing no more than posting charts. I shall return to fill-in the story, either within this entry or in a subsequent one.





Tuesday, February 2, 2010

01/02: Markets begin February with a pop

Market action on Monday, February 1 was positive, with the S&P500 ahead by 1.4% to 1089.2 and the DJIA and NASDAQ as relative under-performers, with respective returns of +1.2% and +1.1%.

A major catalyst for Monday's advance was a favourable reading of the Institute for Supply Management (ISM) index, which registered as 58.4. Any value in excess of 50.0 indicates manufacturing expansion. Furthermore, the dollar pivoted from multi-month highs, notably in the EUR/USD market, where the dollar declined from an intra-day high on Sunday, January 31 of 1.3852; and in the USD trade-weighted index, where the dollar lost ground from an intra-day high of 79.55. Other risk-on trades also re-ignited, with crude oil futures advancing from an intra-day low of $72.43, recorded during Friday's (29/1) trade.

My own trade focused on identifying securities with heavily oversold 60- and 30-day price action. Pickings were abundant, and I further focused on a higher-probability situation whereby price first declines within an explicit downward-sloping price channel, and then violates that channel on high volume to plunge lower still, in accelerated fashion. My own in-house term for such a set-up is the "parabolic sell-off" (though such a phenomenon also occurs in the capitulation phase of bull markets), as the second derivative of price-vs-time takes and maintains the same sign as the first derivative, e.g. the second derivative would become negative in a sell-off, indicating accelerated selling. This is analogous to the behaviour of the second derivative in a simple parabolic equation (such as y=x^2), where it also takes a non-zero value with a sustained orientation in sign that is equal to the sign of the first derivative.

The above-described search yielded three securities of particular interest: YHOO, GOOG and BP. Yahoo and Google share the position of technology bellweathers, and as such, it is not surprising that their charts should share common technical characteristics. Plotting of price channels and support/resistance lines, along with consideration of key support/resistance areas on the 1-year chart of each security, all supported a bullish viewpoint of both stocks. (I expect to post charts of these with the market wrap-up for 2/2.) BP, likewise, featured an attractive entry towards the end of "parabolic sell-off" price action event, and the security also came with earnings risk, as the quarterly figures would be released during the morning hours, London time, of 2/2. The earnings risk was not altogether undesirable, as rival Exxon (XOM) itself issued an earnings report, in its case positive, on Monday that sent shares soaring.

Thanks for reading!