day_trader's blog

A quick update....I have some longer term indicators on the DOW suggesting that a decent rally is about to take place.  Therefore, I went long a swing trading position on today's close.  Went long the DDM (DOW JONES DOUBLE LEVERAGED ETF) at 59.34.  My will may be tested but that is okay since I have a very small size on.  I do NOT trade big sizes when I trade against the trend.  That is a big NO NO.

It is our opinion that todays action in the coal sector has finished their bull run for some time and a NASTY down move is now underway.  It could collapse here.  There is no shortage of coal and the markets speculation made these stocks parabolic.  Chinese demand in anticipation of the olympics could have had alot to do with the spike.  Additionally, the oil mania has rallied coal stocks as coal is considered a cheaper alternative to oil.  Many of these stocks rallied nearly 300% in 2 months time.  The faster they move up, the faster and sharper the drop will be.

Let's review a couple of the big movers today. 

In pulling up the weekly charts on the gold sector, I noticed something that I found pretty interesting.  Over the past few months, the $XAU has actually been forming a massive head and shoulders top.  Now, nothing has happened as far as a breakdown but I wanted to alert you to the potential.  Sure gold stocks were up huge today but nothing has been proven as of yet. 

This market has two levels that I am watching closely, 162 on the downside and 200 to the upside.  A weekly close above 200 will invalidate this signal while a close below 162 will confirm it.  It could get ugly if that happens.

Notice how we have a double shoulder on each side of the head.  Something is brewing.  Let's stay alert on this sector.

Just a quick update here.  It is about 3:15 est and thought I would drop a quick update on what I am seeing.

First of all, the DOW Jones broke to new multi year lows today.  Very ugly with monster price move down today, over 300 points as I write.  The question is how low do we go here on the short term.  Well, the DOW has dramatically dropped off in volume compared to the lows in Jan and March but a close below those two levels would maintain that these market can float lower.  The Dow is definitely the leader to the downside and so are the banks, which have shown NO signs of letting up.  This is getting ugly, but ugly can get uglier.  Short term, I expect a bounce but on a more intermediate term basis, look for low to mid 10000's on the DOW Jones.

Since our last update on the banking sector, this market has continued to free fall with no end in sight.  As the markets continue lower, the banks lead them and with the credit problems that continue to put a damper on things for the banks, the worst seems yet to come.  From what we have been reading, only 30 to 40% of the actual write downs have been made by the banks.  The market knows this and is expecting some of the banks to go bankrupt or be taken over at bargain basement prices.  We know the US banking sector is in deep trouble and we know that these stocks will continue to head lower but the show must go on.  We also know that the Fed will not support any more of these collapses.  Take a look at the Fed's repo lending activity.  That should give you a clue that they no longer wish to inject endl

Since our last update, the market has been stuck in a range of sorts.  About 1330 to 1365ish on the S&P 500.  The markets appears to be even weaker than I thought. 

Notice the true sign of a bear on this 30 minute chart. Lower lows and lower highs all the way down. There is nothing bullish about this chart. Todays lows breached the lows of the 12th and did it with heavier volume. Not good. I suspect a move up to the 1351 area at least on Friday. This is the gap from the 18th. Being that tomorrow is OPEX, we should see a move higher into the 1350 to 1360 region. I believe they will sell this rally and that the market will make new swing lows.

Short Term Outlook

The sentiment picture in the market is so bearish that a bounce is to be expected.  There are some indicators as well that are in very oversold territory.  Therefore, on the short run, we can now expect a rally up to the 1358 to 1375 region on the S&P 500 to work some of these excessive readings off.  There is still an outside chance for the 1400 area but we will take one step at a time.

The scenario above is the best case in my opinion.  I want to stress that the market is extremely unstable right now and a waterfall decline is very possible if 1334 to 1324 region is not held up by the S&P 500.  Markets tend to create waterfall declines when they are extremely oversold and seem like they cannot go any lower.

Intermediate/Longer Term Outlook

Since our last update on the 3rd, the Dow has moved swiftly down, nearly 300 points, and the SPX about 27 points at todays low.  Last Friday marked one of the largest down days in the markets in over a year, even larger than the January lows and March lows.  The troubling part of last Friday's action was the volume in which the markets went lower and with the relentless selling that was going on within the market.  There were no substantial retracements intraday and today's small retracement showed just how weak the bulls were.  This was true distribution and another indication that the rally from the March lows was corrective in nature, a bear market rally!

One of the main reasons that I am taking an intermediate term bearish stance on the market is due to the banking sector which continues to get hammered.  There have been some banks holding above their Jan/March panic lows while others have been setting new lows.  I was first turned on to the idea that the market topped when I saw that the banking sector topped and started heading lower.

The banks led us down in Jan and March and led us back up to the recent high we just set.  Now, they are again taking leadership to the downside.  This is NOT what you want to see.  We haven't seen the XLF or the UYG challenge their respective spike lows from earlier this year but we want to be on guard because we see alot of individual stocks breaking.  Let's take a look at a few charts.

The markets took a hit on the open due to poor economic data being released.  The Dow did a straight bee-line down a bit over 200 points this morning and finally recovered to close down 134.60 or -1.06%.  The Nasdaq closed lower by 31 points while the S&P 500 lost nearly 15. 

What happened today?  Well, even though the markets went lower, we need to look at it in the context of the past few days.  Here is what happened:

1)  The Dow Jones created a bullish spring off of the May 27th lows.  I will use the term "bullish" with caution here as it is not 100% bullish due to the volume of selling that came in at those lows but nonetheless, the Dow closed above that low from 5/27/2008 and thus a bullish spring.