Market Update for Next Week?

Volatility is high in the market, unrest in Egypt might be causing the panic. Market might be worried about Blockade of Suez canal and it's impact on oil prices. I expect volatility to continue in commodities especially in oil and gold prices. We saw gold and oil jumped up on Friday. I would stay away from gold and oil.

We saw across the board decline in stock prices but I don't see any significant technical damage. Next week price data should provide further clues and the geo-political events might continue to impact on market. We had good gain in gold and we sold our position on GLL. Amazon (http://bapus2cents.blogspot.com/2011/01/are-we-there-yet.html) and RSX( http://bapus2cents.blogspot.com/2011/01/whats-next.html) is still working well.

Nasdaq and Rusell 1000 is showing relative weakness compared to S&P 500 and DOW.

Nasdaq daily: QQQQ as a short idea or QID for going long(leveraged inverse QQQ ETF).

IWM daily: This is a short idea or TWM can be used as long idea (Inverse of IWM).

S&P 500 daily: SPY short idea or any inverse S&P 500 ETF for going long.

EDZ daily: Long idea.

SRS daily:  Long idea.

What's Next?

Last week we discussed about market correction and we did see some correction in Nasdaq and small cap stocks. S&P 500 held relatively well and DOW was up for the week. Looks like market is reducing the risk. Gold, Silver and Amazon (AMZN) played exactly as per our expectations.


Nasdaq is breaking down; I have highlighted the next stop on the chart. You can look at QQQQ (ETF for nasdaq 100 as a short idea).

Russell small cap index saw significant correction; looks like next stop will be 50 DMA. You can look at IWM as short idea (ETF for small cap index) or TWM as a long idea (inverse leveraged small cap index ETF).

S&P 500 held relatively well, next few days of price data will provide further clues. I have highlighted support areas; I will be watching the price action around these support areas.

AMZN Daily: This one is right at 50 DMA, I have highlighted the next likely support areas.

AAPL Daily: This is very close to 50 DMA and support area, if it breaks this support, most likely next stop is 200 DMA and a highlighted trend line.

CRM Daily: I have highlighted the most probable path this will take; it doesn't have to take that path. Chart looks bearish to me and this might be heading lower.

RGLD Weekly: Most probably RGLD is heading towards the highlighted support area.

RSX Daily: No divergences on daily chart but we can see bearish divergences on 60 minute chart (not shown), if it breaks the highlighted support line, likely next stop is 50 DMA (highlighted on chart). This is an aggressive trade but is providing good risk/reward ratio.

GOLD and SILVER is playing as per our expectations.

OIL: I will be cautious with oil, looks like it has formed a terminal wedge (though it is not a clear wedge), if it is wedge, it will head lower in near term.

Are we there yet?

I have been expecting some kind of correction to start in the second half of January, if the correction is in the cards, it should start very soon. Tomorrow or early this week will be a good time. If not, we should always respect Mr. Market.

$VIX Weekly: This is very close to long term support line, Jan 2010 and April 2010 correction started when VIX was close to this line. I will watch this line for further clue.

$INX Daily: I am expecting the resistance lines to hold, we might get a head fake but there is a high probability that these resistance lines (Green) should hold. We will know very soon.

GOLD: I wrote about GLD (Gold ETF), I was expecting it to test the trend line and head lower; it has played as per our expectations. The chart still looks bearish and RSI can support lower prices. GLL is an inverse leveraged gold ETF.

Sliver: Silver is in line with gold, I published a SLV chart sometime ago; it is also playing as per the expectations. It has further bearish potential. ZSL is a leveraged inverse sliver ETF.

I am publishing few short ideas, some of them are high risk shorts and some of them are high probability shorts.

EWO: This is an Austria ETF, looks like it is about to complete wave b or 2 and wave c or 3 is about to start, price is still in uptrend but can be shorted in anticipation with tight stop loss, will provide high risk/reward ratio.

TLCR: Another short idea, chart looks bearish to me and this is providing a good risk/reward ratio.

AMZN: Looks like it has formed a wedge, if indeed it is an ending diagonal than I am expecting one more price burst and than a reversal. There is nothing bearish about this chart but if the reversal occurs it will be swift. This is high risk but risk/reward ratio is good with proper stop loss.

Market Update

Market sold off on Friday but at the end buyers stepped in and most of the losses were covered leaving a bullish hammer. Last couple of days, market has shown some weakness in the begining but nothing bearish on the price structure. It is overbought and might be just working the overbought levels. Need more price data to confirm the direction. Financials were showing weakness and we took a small short position in XLF. $VIX is still in no-mans land. JNK reached new high showing risk appetite is back in the market, it might be forming a divergences before rolling off.

I am listing 2 charts one bullish (SPWRA) and 1 bearish (EPP), we don't have any position in these stocks and ETF.

SPWRA Weekly: It is showing head and shoulder pattern on weekly chart, break of the red line will activate this pattern. Left shoulder is little lower than right shoulder or right shoulder is little higher than left shoulder (not perfect) but still valid.

SPWRA Daily: It is showing the bullish flag or wedge pattern, break of the green line is bullish. It has also tested the flag line. 60 minutes chart pattern (not shown) is not ideal so proper risk management is required. For aggressive investors early entry can be taken by using lower time frame chart.

EEP Daily: It is showing double top pattern, decisive lower break of green line will activate the short signal. Bottom green line is likely target. Friday's price action has left a long lower shadow (bullish) but rebound volume is questionnable.

US Dollar & Market Update

US dollar has done well for last couple of months. Let's look at UUP chart (US Dollar Etf). Looks like it has completed A-B-C correction pattern, it is pushing the trend line resistance. MACD is trying to turn up and RSI has plenty of room to support higher prices. If A-B-C correction is indeed complete, 200 DMA seems like a initial target, higher potential exist. 

Please see we have position in UUP, we took the position when QE 2 was announced. At that time there were 98 % dollar bears and price structure looked complete.

Silver is holding well for last couple of days, it is testing the trend line. If the correction has started then it should fall soon within few days. MACD has turned down, RSI has plenty of room to support lower prices. You can look at ZSL, it is leveraged inverse silver ETF. Please see, we also have position in ZSL.

$VIX head and shoulder pattern is still a possibility, it is not showing any directional bias. It should break out soon. We will know soon.

S&P structure looks complete, it is still bullish with no price exhaustion. Today we thought price is turning down. We will know soon.

Gold and Inflation?

Gold goes up in inflation, this one seems so obvious. The central bank or Government print money (bonds, notes), prices for things go up in response and as a result of this inflation gold prices must go up. Gold price rise with inflation is it a myth or truth? Let us look at history of gold prices.

Inflation occurred almost nonstop after great depression, yet gold prices hardly moved till 1970. Yes the gold prices were fixed by the government but market forces are bigger than government. Gold prices rose from 1970 to 1980 and consensus was gold is catching up to the inflation and predicted gold to continue to rise with inflation. Gold lost close to 80 % value between 1980 to 2000 whereas inflation continued for this period. Gold rose close to 400 % from 2000 to 2010 and this decade was a deflationary decade.

Let’s summarize the numbers

1930 - 1970 – Relentless inflation – No change in gold prices

1970 – 1980 - High inflation – Gold prices soared

1980 – 2000 – Nonstop inflation – Gold lost 80% of its value

2000 – 2010 – Deflation – Gold gains close to 400 %.

Gold prices go up in inflation, Myth or Truth?

This is not to say that the gold prices won’t rise or fall, it will do what it has to do but the question is, is it because of inflation?

Let's examine current GLD daily chart (Gold ETF)

We see divergences, it has failed 3 times at the similar price level, maybe triple top? If it breaks drawn support line and 50 DMA which coincidentally is same as support line, we can see some down movement. In the interest of full disclosure, we do have a position in GLL (which is inverse of GLD), we took this position after it failed at the 2nd top.

We also sold our EXPE today for a small gain. Market direction is not clear yet. Some of the charts have started showing topping signs, we will have wait for more confirmation.

What 7 billion people really means.

What 7 billion people really means

http://video.yahoo.com/network/100000089?v=8694414

Investors start new year with a bang

As opined yesterday market started New Year with a bang. We have divergences but no price exhaustion and topping patterns. As we thought, VXX also tested the lows today.

When we look at individual stocks we see divergences but no topping patterns. Today's market action was interesting; most of the spiders are showing long upper shadow. If we look at VIX, it is also showing hammer candlestick and looks like it might be forming inverse head and shoulder pattern. If it does indeed break out of inverses H &S pattern watch out for VXX, it should rise and could be traded for a short term.

EXPE drop today and found support at 200 DMA, We took a long position in EXPE today, our stop loss will be 24.20 (just below 200 DMA), it is an aggressive buy but the risk/reward ratio is good. Initial target is around 27.

Next few days should provide more clues about the market direction.

Will we see correction?

DOW Daily: RSI is very close to overbrought, MACD is about to rollover. We have divergences forming on MACD and RSI. Price structure is not bearish yet, we might see some up or down movement. Sentiment indicators are showing extreme readings. I am expecting some kind of correction to start within few weeks. Volume is down for couple of weeks now but it is little early to say because of holidays, first few days of 2011 will give us a clue.

VXX Daily: We see divergences forming on RSI and MACD. If the market starts a correction this should rise along with market correction. Volume pattern is not clear yet and it is possible it would make a new low before rising, I would be watching this for further clue to market direction.

I will be watching for market direction before making any commitment. Will post my watch list soon.