Oct 162014
 
BXS daily Oct 15th

BXS daily Oct 15th

The BXS short trade hit the second target, T2 at 19.33, yesterday for a profit of 18.1% since the original short entry. Consider booking full profits and/or raising stops, depending on your trading plan. T3 at 18.30 remains the final target for now but as always, reactions off the initial tag of each target level are likely.

Oct 162014
 
AA daily Oct 15th

AA daily Oct 15th

The AA (Alcoa Inc.) short trade hit the final target, T2 at 14.05 for a 15.5% gain yesterday, exactly one month after the short entry at 16.62. Consider booking full profits as T2 was the final target on this trade.     click here to view the live daily chart of AA

Note: For those signed up for email notifications, updates may be posted on a few other trades that have recently hit a price target as I’m updating the trade ideas today. In order to reduce inbox clutter, notifications may not be sent out on all trade updates today unless the trade offers an objective entry, add-on or the price targets or stops have been modified since the previous update. All completed trades, winners & losers, must be posted after reaching a profit target or being stopped out or removed early for categorical & archiving purposes.

Oct 152014
 

Wash. Rinse. Repeat. WLT (Walter Energy Inc) will once again be added as an aggressive Long Trade Setup on a break above this 60 minute bullish falling wedge pattern. T2 (2.59) is the current preferred target at this time with a final target (T3) at 4.17. Stops will be determined upon entry.  As with the previous WLT long trade, Walter Energy, along with several other US Coal stocks, has the potential to morph into a long-term term trade or bottoming play. However, we just don’t have enough technical evidence at this time to make that case with a high degree of confidence although I have been observing some recent bullish price action in other coal stocks, such as ANR (also shown on the 60 minute time frame below, as this stock has recently broken above this descending price channel & will also offer an objective long entry once the 2.04 resistance level is clearly taken out). Target levels are marked but the suggested sell prices will follow.

 

On a related note, I wanted to clarify or really expand on my previous comments about hedging against short positions. For weeks now I have made a case for a reversal in the $USD and a bullish case for select commodities including gold/gold mining stocks, wheat, corn, soybeans and select US coal companies. I continue to believe that these are some of the most promising trade ideas heading into the 4th quarter & likely well into 2015 and as such, although they are not considered typical hedges against short positions in US equities, they very well could prove to be if things play out that way (dollar down, commodities up). That has certainly been the case recently with precious metals and those commodities (and commodity producers) exhibiting very strong relative strength against equities. In this sense, I am running a quasi-hedged portfolio or at least a long/short portfolio, since it is not directly hedged via equity index futures, call options or bullish ETFs against my short positions.

Oct 152014
 

I’ve fielded a few questions recently inquiring as to when I plan to cover my shorts or start hedging for a meaningful reversal in the broad market. I’ve repeatedly stated, including in this update a few weeks ago, that the broad market short entry back on Sept 25, based on the partial rise into the broadening top pattern, would likely be a short-term catalyst for a longer-term sell signal, as the breakdown of that 60 minute pattern would likely trigger the much more important breakdown below the daily & weekly primary uptrend lines on the major US stock indexes as well as the likelihood of triggering death-crosses on the 20/50-day ema pairs.

With all of the those larger, more powerful sell signals above now clearly in the rear-view mirror, my focused has turned to the downside targets on the daily charts (which were all updated over the weekend). When managing my portfolio positioning (i.e.- net long or net short) based on the technicals of the broad markets, I will typically begin to reduce my market exposure (i.e.- close positions and/or hedge) when the first of the major US indices (e.g.- $SPX, $NDX, $COMPQ, etc…) look poised for a reversal. In other words, although my downside targets for the $SPX, $NDX, & $COMP (daily time frame) are roughly aligned, I will usually position for a reversal as the first of these targets is reached. When the markets become this near-term oversold (keep in mind that the weekly charts are FAR from oversold), the odds for a very sharp reversal starts to climb at a very rapid rate with each tick lower. Most often in sell-offs like this we get a final thrust down, blow-off move, typically at support and often just briefly overshooting that support (due to the powerful downward momentum). However, at times these sell-off end with the relatively muted thump vs. a quick BANG!

Therefore, I find it best to start gradually reducing short exposure as we start to approach the first downside target, which at this time, will likely be T1 (the 4000 level) on my $COMPQ chart, which is about another 3% below current levels. As always, trade (or stand aside) according to your trading plan & risk tolerance. Also remember that the markets (and therefore the charts) are dynamic, not static, and therefore, my plan today may or may not be my plan tomorrow or even 30 minutes from now. The SPY did tag a decent horizontal support level that comes in around 181.65 and has so far reversed off that level so there is the possibility that we get some short-covering & dip buying to fuel a quick snap-back rally here. However, other than some 15-minute bullish divergences and very oversold near-term readings, including a recent $TICK extreme, I don’t see any reason to cover any shorts other than those that have reached a preferred or final price target.

Oct 152014
 

The yield on the U.S. 10-year Treasury bond dipped below 2% for the first time since June 2013. For anyone that might have missed an opportunity to refinance over the last few years this could be the last trough in rates before the train leaves the station for good. As today, the average rate on a 15-year mortgage is hovering just above 3% and with today’s plunge in rates (a drop of about 5 1/2% on the 10-year rate as I type and that’s well off the lows earlier), we could very well see 15-year mortgages below 3% soon, barring any strong reversal in rates from here (30-year fixed mortgages are currently hovering around 4%).

$TNX weekly +15 year mortgage rates Oct 15th

$TNX weekly +15 year mortgage rates Oct 15th

Oct 152014
 

As recently discussed, the intermediate-term trend, as defined by the 20/50-day EMA pair, triggered a sell signal last Tuesday and that signal remains solidly intact at this time. The same 20/50-day EMA pair has also done an excellent job of defining the intermediate-term trend (bullish or bearish) on other major US indices as well, such as the Nasdaq Composite (see chart below) & Nasdaq 100. The Nasdaq Composite ($COMPQ) triggered a death cross of the 20/50 EMA pair on Thursday with the Nasdaq 100 following suit with a 20/50 day EMA death cross on Monday of this week.

The fact that the intermediate-term sell signals triggered in conjunction with the breakdown below the primary bull market uptrend lines in many of the major US indices means that there is a strong likelihood that we are looking at more than a typical run-of-the-mill correction like we’ve seen over the last couple of years. More active traders might consider adopting a short-bias with a “sell-the-rips, cover-the-dips” strategy (opposite of the buy-the-dips strategy in an uptrend). Longer-term swing & trend traders as well as investors might consider keeping things light for now as we still have the longer-term trend indicators (weekly & monthly trends below) solidly entrenched on buy signals at this time.

The earliest reliable trend indicator that I follow in order to determine the primary trend (i.e.- bull or bear market) is the 43/17-week EMA pair. Logically, this pair will trigger earlier buy & sell signal than the extremely reliable 10/6-monthly EMA pair but as with using any moving average pair for identifying trends, the faster (lower periods) the averages, the more prone they are to whipsaws (false signals). For example, as you can see in the $SPX quad-trend chart below, the 43/17-week EMA triggered only one sell signal since confirming a new cyclical bull market on the week ending Sept 4th, 2009. That sell signal came the week ending Sept 2nd, 2011, towards the tail end of the very sharp correction in the $SPX around the 3rd quarter of 2011. That was the largest correction during the entire bull market and it was technically a bear market in the Nasdaq Composite (defined by a drop of over 20%). However, the 43/17-week pair remained on a buy signal in the Nasdaq 100 during that correction & in fact, has never triggered a bearish cross-over since signaling a new bull market at the close of the week ending July 24th, 2009.

Remember: The trend is your friend and depending on what type of trader or investor you are, you might engage (or disengage) this market differently. For example, if you are investing for your retirement in 20 years, and you believe this to just be another correction in an ever-lasting Fed induced bull market, then your strategy might be to sit tight on your positions and maybe even adding on any weakness in the upcoming weeks/months (until/unless the weekly & monthly trend indicators roll over). More active traders might consider selling the rips (i.e.- shorting bounces back to resistance) and buying the dips (i.e.- covering or reducing short exposure when the prices fall to decent support & the charts indicate a bounce is likely). Typical swing traders might just position short & stay short until some decent evidence of a likely near-term & intermediate-term trend reversal starts to develop in the charts. Overall my bias remains short equities, long select commodities with a cautiously bullish bias on precious metals & the miners. However, just remember that nearly everything gets sold during panic sell-offs and this market has been a bubble in the making for years now make sure to adjust you position size on any longs commensurate with your risk tolerance.

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