Last Post before tonight's

Remember yesterday I said all the 3C timeframes lined up, it was a rare occurrence, but is the best signal of a reversal-that was yesterday.

So it seems like we are on our way back to the neckline. This time we'll have some different strategies in place.

I hope you all made a nice little chunk of change today.

Short Lived Bounce

off of support looks likely.

Support @ $112.25

Is coming up. I don't see anything to suggests a big bounce off that level, if it breaks, that's good for us. There's more significant support between $11.60-$112. The fact $113 was taken out is a huge event, if it holds and we don't move back above, I'd say it's fair to say that the "JUDO CONCEPT" will kick in and long's will be on the fresh squeezed side. These tend to fall faster and harder then they rise.

TICK INDICATOR

is indicating a small bounce coming.... It's probably of no consequence

Break of significant support

As you can see, volume picked up significantly on the break of support, we did get the false move on the support level at the first arrow creating a secondary support level-the white boxes show corresponding volume as those levels were broken. The white arrow at the top shows a high volume spike and no appreciable price movement, this is a signal or in poker player's vernacular, "a tell". It is a version of churning, bulls and bears swapping shares, but the bulls lost the momentum and got stuck with the shares. These are the subtle things you watch for.

"To make money in the market, you must see what the crowd missed"

The Baltic Dry Index

The Baltic Dry Index is volatile, but is often a leading indicator for the market. It is basically the cost of shipping dry goods via container ships. As you can see below it peaked on 9/10, the market peaked on 9/21-7 trading days later.

Just for an extra measure of confirmation-this is the Dow-20, better known as the "Transports"-same idea, but not limited to shipping.

That's some pretty sever price momentum the last two days

SPY support

Levels to watch-$113.10-$113.20 is a major support area for the SPY, it's no surprise it's hanging by it's fingertips from that level, nothing goes straight up or down in the market for this very reason. a break below that level, especially on a close could be quite damaging. After that $112.25 would be the next support zone. We have resistance near $113.70. Be aware that these are all obvious levels and therefore are subject to false moves. I think a trading system based on false moves may produce unusually high returns being the chances of seeing such must be well above 80%.

Update

Interestingly on a short term basis, the SPY and the DIA appear to want to bump higher, the NASDAQ appears to want to collapse-I did say that the NASDAQ led the advance and was likely to lead the decline. Bump higher means intraday, perhaps setting up a closing sell-off?

The New Stock Picking Plan

As I mentioned, I think it will be more profitable and easier for many of you to have a limited number of stocks we track and trade. Of course, wherever's there's an opportunity, you have to take it so these are not hard and fast rules, but some initial ideas and I'd like some feedback from you all .


First, we'll have several lists for several market conditions. For a market like this, I'd have a "Swing Trade List" and one moving into a trend trade. For the Swing trades, I need to pick the stocks and then backtest strategies with 3C to find out which ones perform the best, however I think that components of the heaviest traded ETFS, with the highest weight and beta would be good for swing trades.

The reason being is that these stocks will see buying and selling regardless of their valuations because funds and ETFs that track an index are buying and selling these components to get their performance in line with their objectives. Like we saw in AAPL, they wanted to bully the market higher, whether AAPL is deserving of it's multiple's is irrelevant, what is, is the buying and if we can see that, then it makes it a good candidate. It's also got enough volume that hopefully we won't see shorts being closed by brokers. It is high priced, so obviously I want to find $10-$20 stocks that people can afford to take a decent position in.




For Trending Trades: Commodity ETFs and Commodity related companies as it is well known that commodities trade in trends far better then typical stocks-look at trends in oil, the dollar, gold, etc.

Also for trending situations, leveraged ETFS. their weakness is in a choppy market, their strength is typically in a trending market, so highly leveraged ETFS for trend trades.

Those are my thoughts for now. We may also add a short term trade 5 days or so, these will typically be volatile bio-techs and low priced stocks, high beta, and volume around $100k. These are favorites for momentum players and we have had many of these make 1 day 20-30% returns. One did 180% in 3 days. there's a particular moment when these trades take off-these will be on a scan basis as the sector rotation in these stocks is quite frequent.

We'll also have market coverage, but I think from what I have seen in backtesting systems, a few stocks, meant for a certain trading system work better then a scatter gun approach.

Feed Back?

Afternoon Update

SPY 1 min .. Another apparent failed breakout pattern, this is beyond ridiculous and if traders can't figure the game out, they don't belong in it. Every pattern we see os a false breakout!

SPY 5 min-there was no intention apparently to take this false breakout to the upside of the bull flag higher as the 5 min negative divergence points out clearly.

Here... Are we seeing some strengthening in the dollar? 

AAPL 1 min.

AAPL 60 minute negative divergence.

The long view of GLD - still very negative and looks almost exactly like the collapse in oil after the multi-year uptrend. The blow-off tops that make the wedge look like a failed pattern, the huge distribution, the media implying that it will never stop going, just like they did with tech, housing and oil.

Understanding Double Dip and Unemployment

First of all, the negative divergence is now leading in the SPY, so we should be close to a downside reversal.

Here are some charts and my crude attempt at graphics to show you the relationship

By the way, Briefing.com is an excellent resource, even the free version. Above in the grey areas are recessionary periods. By true definition a recession is two consecutive quarters of negative GDP growth. You can see the obvious effect and correlation between recessions and unemployment. You can also see how bad this recession is and that initial claims are still higher then when we saw a recovery in the Sept 2001 area.

The Labor department uses a 4 week moving average -like we use, to smooth the data and get rid of anomalies. However, as you can see, with this morning's release we are close to crossing back above the 4 week moving average in yellow. Also the period in March when claims started to fall and we saw our March'09 rally kick off, you can see a fairly clear trend moving down. Since March 10th that trend has moved lateral. This is not the same as a stock market consolidation and this is what is fueling the concerns over a double dip, because in the period just before and after March 2010, the government threw everything they could at this recession to end it. The current belief which seems to be a reality, is that was the best we were going to get from the government, we aren't in a position to do even the same and if it didn't work then, how are we to curb this disturbing trend with less resources available to fight it? Note how the Fed has consistently, vaguely referred to extra measures they can take, but they have not laid them out. They are in effect saying we have tools to fix this, but they aren't saying what they are and that is spooking the markets and causing them to wonder if the Fed is doing all it really can do at this point by creating confidence through a bluff.

Continuing Claims, still at historic levels. While technically the recession may have ended, technical labels don't put people back to work.

This is my crude attempt to overlay the S&P-500 over the historical Continuing Claims data. You can see how the market has reacted to the data, pay close attention to it and note the years. Note what has happened when momentum has slowed. This beast is bigger then many realize.

Update

Price has continued higher, I think it has something to do with filling the gap as we saw a volume increase, there are no positive divergences driving it, so I'm not too concerned about it at the moment.

Update

Sorry it's so late, still fooling with the new computer as I can't run the charting software on both. So there was a positive divergence i the 5 min chart right off the open, I believe the Home sales were known and to be used to move the market higher, the good news appears to be a 1 minute negative divergence putting an end to that move now. More to come...

New Computer, New Problems

I've bee having problems with my MAC that have taken me 25% more time to get posts out and I had enough of it, so tonight I went out and bought a MacBook Pro-(nothing but the best for you guys) and I've spent the last 5 hours trying to get it ready for tomorrow. This is the reason there's no post tonight. There wasn't much I could say in any case that will trump with Initial/continuing claims out at 8:30 a.m.

The 1 min positive divergence into the close had me a little worried, but the fact all the longer timeframes lined up negative makes that a draw-kind of like partly cloudy, if it rains I'm right, if it doesn't I'm right :)

Really though, it would suggest some initial strength with a sell-off after that. I can't imagine it, either the numbers are good or bad, but I've seen much stranger things happen with 3C. So until the morning.

I have another few hours of setting up the programs now that I have windows set up on the MAC.