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Bullish Percent Index – NASDAQ
billkat – I’m glad I found you here. I remember reading a question from you late last night about using the Bullish Percent Index as a measure of the market bubble, but I couldn’t find it this morning. I’m not sure where you had your chart posted. I was exhausted last night. In any case, here’s my assessment, and I hope my memory serves me correctly about your question.
First thing we must keep in mind is that, while the name may carry that connotation, the BPI (Bullish Percent Index) is actually not a “bullish sentiment” index per se. It’s a ratio of the number of stocks with the Point & Figure Chart Buy Signal to the total number of stocks of the market index. The market index could be NYSE, NASDAQ, etc. And, its Overbought and Oversold readings are 70% and 30%, respectively.
Since it’s the actual number of stocks showing buy signal according to the P&F chart indicator and NOT the survey of newsletter writers or the Put/Call ratio of the option derivatives, I’m not sure if it’s appropriate to use BPI for the stock market “bubble” sentiment analysis.
This 9-year weekly chart shows that even during the high flying days of the late 90’s, NASDAQ’s Bullish Percent Index had hardly gone over the 50% reading. It was just zig-zagging back and forth between 50% and 30%.
This index did get up to the “Overbought” territory of over 70 in 2003 and early 2004. But, as you can see, the market did not experience the type of “bubbly” crash as it did in 2000-2001.
I think this index would be more appropriately used as a market strength indicator.
I hope that answers your question satisfactorily.
David's Weekly Market Chartmentary June 5, 2005
My analysis last week showed that the market was in the process of topping out. Nonetheless, Friday's broad market decline didn't mean that the market had finally topped out. Let’s get technical and see how far along we are in this process.
This is the NASDAQ Composite intraday 10-minute chart that covers the past 8 trading days - 5/24 through 6/3/2005. Let's walk through the action of these 8 sessions first.
This Fibonacci Arc was constructed by drawing a Trendline (red diagonal line) connecting the highest and the lowest price points (small black circles) on this chart. The lowest point (2,041.95) occurred on 5/25 and the highest point (2,097.80) on 6/2/2005. The percentages on the left are the Fibonacci Retracement. A 50% retracement from the high of 2,097.80 is at approx. 2,070 (see aqua color horizontal line).
On 5/26, after a gap-up advance, NASDAQ hit the 2070 overhead resistance, which happened to be the first outer layer (blue circle) of the Fibonacci Arc. In an uptrend, these outer layers serve as critical resistances. And, on this day, NASDAQ got stopped cold right outside of the Arc.
On 5/27, it finally broke through both the 50% retracement and the first layer of the Arc. However, it then bumped into the second layer resistance (blue circle), which coincidentally was at the 61.80% Fibonacci Retracement. This resistance turned out to be a tough one to crack. As a result, NASDAQ dropped below both the Trendline and the 50% retracement level on the first trading day after the long Memorial Day weekend.
Except for June 1, the subsequent market action pretty much took place below the Trendline. NASDAQ did manage to cross above the Trendline on 6/1, but it fell right back below the Trendline at closing. Moving below the Fibonacci Arc Trendline seemed to indicate the weakening of the current trend.
On Friday, June 3, it took just one day to undo all the effort that the market took 4-5 days to put together. Now, on the decline, the inner layers of the Arc become the supports. On this day, it set right above that 2070 level, which happened to be the critical 50% Fibonacci Retracement. This 2070 is now as tough a support as it was a resistance just three trading days ago. In addition, we must keep in mind this is only the first line of defense. There are two more layers of defense approximately at Fibonacci Retracement of 38.2% and 23.6%.
The market didn't fall apart on Friday by any measure. It actually sit quite comfortably 2 layers above the breakdown. Let's seek further confirmation.
This is the chart that I posted on my Trade Journal on Wednesday. As you may see that the bottoming of the NASDAQ option Volatility Index (VXN) usually indicates that the top is near. Let's check out the updated chart.
Just when I thought VXN volatility couldn't' go any lower, this updated chart below shows that it did drop lower - see red arrow. The Aroon UP (green line) had actually formed another lower high to make it 4 in a row. Aroon UP eventually would have to move up, and that's when VXN would also begin to rise. Meanwhile, Aroon DOWN (red) just broke below the previous lows for the first time since May 11 - see red horizontal line. When Aroon DOWN crosses below 70, that's when the downward momentum picks up. By the way, Aroon is a great direction indicator. Aroon means "Dawn's Early Light" in Sanskrit.
This updated chart shows us that it's getting another step closer to the top, but it's not there yet. It refused to go down without a fight. And it may take a little more time than we thought.
Next, let's check the Fed's money stock supply. In my previous analysis I pointed out the inverse correlation between the market and the M2 minus M1. For new visitors, backing out M1 leaves M2 with just the savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds.
M2-exM1 is currently on a downtrend. This means that money's going back into the equity market again. The only concern is that the Fed's money stock report has almost 2-week lag time. But, going by the latest data available to us (for the week ended 5/23/2005), the market didn't seem ready to go down just yet.
Looking at how Friday's decline was stopped right at that inner layer of the Fibonacci Arc and the 50% Fibonacci Retracement, I would not be surprised to see the market rally back up early next week. It takes time for the topping process to complete. I wouldn't go too overboard shorting the market, yet.
Chart Talk: TRIPLE TOP - Goldman Sachs (GS)
Not a documented trade on my journal, but it's one of the triple top patterns that's rarely talked about nowadays. It's rare because it requires patience for this pattern to develop. With the short attention span of the mechanical trading, no one has the patience to track a stock for 3 months to make the trade. That's how much time it took for this GS triple top to develop - from Feb to May. Even the breakdown took almost 3 weeks.
A true chart connoisseur should be able to appreciate this.
NASDAQ Intraday Percentage Leaders 6/3/2005
There were 10 stocks with double-digit gains on NASDAQ today, and only half of them have at least 1 million shares traded. Again, none of them is a member of any market index. And their share prices range from $2.25 to $8.65, except for Blue Coat (BCSI), which has share price at $25.01.
I'm going to start keeping track of this data as much as I can here until we find some sort of a pattern.
ISSUE INDUST PRICE GAIN
Blue Coat Systems Inc (BCSI) Software $25.01 25.4%
SCM Microsystems Inc (SCMM) Computer Peripherals $ 3.40 18.5%
DDi Corp (DDIC) Computer Peripherals $ 2.48 14.3%
Chinadotcom Corp (CHINA) Software $ 3.45 13.1%
RITA Medical Systems (RITA) Medical Equipment $ 2.99 11.2%
Wet Seal Inc (WTSLA) Retail $ 5.39 10.0%
billkat- Glad you took advantage of Happy Hour to make your mark on my humble journal. I appreciate your thoughtfulness.
Here's something I just thought of... Yesterday I remember reading some paid "experts" comment about the market's expectation of today's payroll report. I couldn't remember who that was. According to him, if the payroll added any more than the expected 185,000 new jobs, it could hurt the market. However, if it added fewer than 185,000, the ease of inflation concern could spark a market rally.
Well, according to Labor Department report this monring, only 78,000 non-farm payrolls were added in May. That should really put the inflation concern at ease, but the market went down.
I'm sure these "experts" understood this is not about the inflation anymore. They just got to spin it anyway they could. This is about the economy slowing down, on a global scale. Well, call it "soft patch" if they had to. To me it's more like a NicoDerm CQ patch. We're so addicted to debts that we need some type of patch to help us fight this addiction. Of course, we could go cold turkey too.
In any case, the market action really had little to do with this report and that report. Anything known is no longer worth knowing. It has already been discounted. Today's market action is already discounting way into the future.
Today's not really a bad day. I'd say it's a mild down day at most. Low volume accompanied by QQQQ still hanging above 50 on the 5-day RSI. It's just a non eventful day. It looks more like a end of the week consolidation of a technically overbought condition.
OmniTrader, Shorts, & Market Top
PieSky- You’re a thinking man. You’re too funny. Now I know too what it meant when I said “What is thinking is unthinking”. It’s indeed such a pleasure to make your acquaintance. I couldn’t stop grinning whenever I read your messages. You’re a good guy.
I’m out of ZIPR now, but it’d be another shorting opportunity after the squeeze. We’ll see.
Shorting is tough only because it’s such an emotional issue for some shareholders. I have a few short positions in place, but I’m afraid to mention them. I personally don’t have any problem with anyone shorting the stocks I own, but it’s a crusade for a lot of people. Put option is a different story. It’s not as “offensive” to the shareholders because not as many people understand option trading. That’s one reason I’ve only posted Put option plays on my Journal instead of shorts.
Yes, I do see it technically and fundamentally that the market’s topping out. But, as the saying goes, “don’t tell me what’s going to happen, just tell me when.” And, no one knows exactly when anything’s going to happen in the market. Market does what it wants and when it wants to. All we can do is recognizing the trend, put our plays in place, and wait it out. I’d say this though.... The longer it takes for this top to complete, the harder the subsequent fall is going to be.
Yes, you’d have to give it more room and more time for the formation to complete. But, that requires conviction and confidence in both your own technical analysis and fundamental understanding. We’d also have to work within our financial means.
I was actually considering OmniTrader system when I received their brochure. I think it looked pretty good, and the price seemed reasonable. I believe the data subscription is $30 a month, which is not bad. I didn’t go with it because I’ve got a handful of programs from different brokerage accounts that I have. They’re doing a good job for me right now. I also don’t scalp as much nowadays. But, for day trading or long investing, I think that OmniTrader sysem looks pretty good.
Watch out when you see a finger in your Pepsi next time….
Have a great day!
wang- Some wonderful painting on your website. I took a little tour and enjoyed it tremendously.
Here's a painting that's been haunting me. This is probably Vermeer's best work. I thought this "Girl with a Pearl Earing" was much more intriguing than Da Vinci's "Lady with an Ermine".
BTW, I went to see Lady with an Ermine when it came to San Francisco, and I stood in front of the painting for a long time couldn't move.
NASDAQ Biggest Intraday Percentage Gainers
Of the 25 double-digit percentage gainers, only the following 11 had more than 1 million shares traded, and all of them are non-index members. That makes all 25 of them non-index members. There's that eerie feeling about this.
How does this influence the overall market statistics? Does it skew the market strengths and weaknesses? Does it make the market seem much stronger than what it really is? If this keeps up long enough, does it convert investors into more bullish buying?
This is the type of market that requires the patience of 10 men, as Richard Russell would put it. It's going to be exciting. We'd just relax and enjoy the show.
Internet Initiative Japan(IIJI) Internet Tokyo 24.5%
Anadys Pharmaceuticals(ANDS) Biotech 23.8%
Sciclone Pharmaceuticals(SCLN) Drug 22.2%
Shopping.com Ltd(SHOP) Online Shop 19.1%
Amkor Technology Inc (AMKR) Packaging 18.7%
ViroPharma Inc (VPHM) Biotech 17.3%
Dobson Communications(DCEL) Telecom 16.7%
Wet Seal Inc (WTSLA) Retail 16.7%
SiRF TECHNOLOGY HOLDINGS(SIRF) GPS Manufac 11.7%
Evergreen Solar Inc (ESLR) Solar Power 11.4%
Ixia (XXIA) Semiconductor 10.4%
ZIP Realty (ZIPR) Trade Alert
Since I posted this trade here..... FYI, in case you had shorted this stock, this may be the time to take the profit. My broker just called and told me that there's no more shares to borrow.
I didn't want to get caught in the short squeeze. I went ahead and closed the short position. 10% profit was good enough for me.
Have a great day, everyone.
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NASDAQ 100 Topping Out
Just a chart to share here... Good night everyone.
NASDAQ 100 TOPPING - One More Look
This chart should provide further validation and clarification of my assertion of the NASDAQ's top. This is looking at NDX option's Volatility. The bottoming of this volatility index helps identify that the top is in. As any topping process, it may take time to complete.
For those of you new chartists, the market's considered topped out when the volatility declines to the bottom. And when the volatility starts to rise again, the market then starts to decline.
NASDAQ 100 Trust (QQQQ) Trade Technical Note
The “2:40 Effect” didn’t take full effect today. As this intraday 5-minute chart shows that the market had enough demand to pull it out of the fall that, once again, began right at around 2:40 pm. However, on the bounce back, it did not surpass the point where the 2:40 drop started. Nevertheless, something funny did happen again at 2:40.
In any case, this little intricacy was just for amusement. It’s not the main reason for this trade.
This chart is my primary reason for the trade.
CBOE (Chicago Board of Options Exchange) total Put/Call Ratios serves as another good indicator of the market top. The NASDAQ 100 Index (QQQQ) seemed to top out when this ratio (see the blue zig-zag lines) dropped to the 0.65 area (see blue circles along the black horizontal line). These are my observations.
- The ratio stood at 0.68 today.
- Rising price with declining volume (as it was when it topped out in May last year).
- RSI was in overbought area over 70 (as it was when it topped out in December).
Since this CBOE total put/call ratio was for the broad market, I took a look at the specific Put/Call Volume Ratio just for the NASDAQ 100 Index. And, it too shows similar correlation between the price and the Put/Call Volume.
I also noticed the Put/Call Open Interest Ratio (not shown on charts here) had shot through the roof on Friday. Obviously option traders were loading up on Puts. And, I don’t see any reason why I shouldn’t join the party. July expiration also gave me more time to make necessary adjustments if I had to.
NASDAQ 100 Trust (QQQQ) Trade Journal – 2:40 Effect?
Bought QQQQ Jul $38 Put at $0.60. More technical notes to follow
Good to be back at the helm...
David’s Weekly Market Chartmentary Sunday, May 29, 2005
(I’m writing this on the road. Please pardon the delay.)
Market in Topping Process
Generally speaking, free trade gains popularity as the economy expands, and protectionism becomes public sentiment as the economy constricts.
The “NO” vote by French people on the new EU Constitution expressed that public sentiment. Apparently, French people don’t want the type of economic and welfare reform that the business community wants. They don’t want it turn out to be just like America. France has 10% unemployment rate. And then, there’s Turkey, a Muslim majority country that was denied of their admission into the bloc of Christian counties union.
Whatever may happen to EU is yet to be seen. One thing we do know is that it would further Dollar’s uptrend and that the protectionism appears to be gaining momentum around the glob.
I posted a chart last week that showed the inverse correlation between the Dollar index and the stock market. One reason is that rising Dollar makes us less competitive in exports. Export of goods and services is part of our GDP. Higher Dollar does make imports relatively less expensive. While that may provide some relief on import oil and materials, oil price is not determined by just the currency valuation. It’s dictated by the law of supply and demand. With China also on the demand side of the equation for oil and with its currency pegged to the Dollar, any drastic decrease of oil price is not likely to occur.
And then we have the game of chicken going on between the US and China over international trade. The Anti-China protectionism sentiment has been gaining momentum of late. Trade war is no good for anyone. The tension between EU and China has also been mounting. Everything has to do with everything else in our relative universe. We have to be able to connect the dots and see the big picture. And, the big picture I’m seeing now concerns me.
The other concern is, again, the trading volume.
I think Michael Kahn, the technical analyst of the WSJ, hit it right on the head of the nail. He wrote: “It all comes back to supply and demand for stocks…,” and “Since volume did not increase with the current rally to date, we can deduce that it was a drop in supply, not an increase in public participation (demand) that was the culprit.”
The way I see it, a small number of stocks making large gains characterizes a weakening market. It gives the perception that the overall market is healthy, but in reality it’s not.
Here’s looking at the 2-week action of NASDAQ. Only 2 out of the past 10 trading sessions the volume had gone over 20-day moving average. The minor up day on Friday had the lowest volume. Not much was mentioned about them, but silver and gold were the No.1 & No. 2 industries that had the biggest intraday gains on Friday. It’s the precious metals, energy and utilities, etc. that kept the market afloat on Friday. Semiconductor dropped 0.7% on Friday. NASDAQ doesn’t go far without the tech sector leading the way, and the market doesn’t build momentum without NASDAQ charging ahead.
This next chart is similar to the TRIN indicator chart that I posted on my website on Thursday, with the addition of the McClellan Oscillator. Let’s take a look at the TRIN indicator first. When its 10-day moving average (blue line) reached that overbought territory of 0.90 and started to turn up, the market began to decline. The 10-day TRIN moving average stood at 0.88 on Friday and the little hook at the bottom might’ve indicated it’s ready to make its move up. The McClellan Oscillator may have confirmed just that.
Normally, McClellan’s overbought and oversold range is between 100 and -100. But, instead of going by the book, we must recognize the recent low trading volume and heed its relative movement and locations.
In any regard, you can see that McClellan Oscillator had attempted to break through 50 unsuccessfully. Now, after several failed attempts, 50 should hold as a strong overhead resistance. This implies that this is as “overbought” as it can be. Then, the path of least resistance is to decline from here.
We then have TRIN in the overbought territory of under 0.9, and McClellan seemed to have maxed out at the relative overbought territory of 50. It’s only logical that the market is due to fall from this overbought condition.
Incidentally, I’m not saying the market’s going to have the same 1929 type of crash. It’s hard to imagine having a crash of that magnitude without the extreme euphoric sentiment as it did in 1929. I’m referring to a near-term market correction based on the technical and the fundamental reasons.
Finally, many analysts believed that, with all its momentum, NASDAQ could hit 2100 before the commencement of its retreat. I don’t believe NAZ has to go to 2100 before retreating. It's as ready to come down now as ever.
This weekly chart shows that the current 2075 is as good a resistance as any level. In fact, there’s no resistance at 2100. Once it broke above this 2075-2080 level, it could go much higher than 2100. So, the question is whether the market is carrying sufficient momentum to achieve that. If not, then this is where it hit a snag.
In addition, ADX (Average Directional Index) line (thick black line) had already begun to trend downward. Wilder’s ADX is one of the best indicators that measured the strength of the current trend. Although the green +D (the positive Direction Indicator) had crossed above the red –D (the negative), the downturn of the ADX signals the weakening of the current uptrend.
Yes, the market’s topping out.
FedEx: “That’s Exactly What Our Customers Want."
For some reason, I’ve been quite disturbed by this headline story in yesterday’s WSJ. It could be just the way the story was presented. In any case, I thought I’d post my notes here for you to make your own judgment. And, perhaps you’d like to consider whether this is “exactly what you want” if you happen to be a FedEx customer. Then, what do you do?
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FedEx has opened the international portion of its databases, including credit-card details, to government officials. It has created a police force (after intense lobbying by FedEx) recognized by the state of Tennessee that works alongside the Federal Bureau of Investigation. Moreover, the company is encouraging its 250,000 employees to be spotters of would-be terrorists.
When the government wanted help fighting drugs and smuggling, FedEx felt many of its requests were intrusive and threatened to slow the pace of their deliveries. When the worry was terrorism, its CEO, Fred Smith, says, the company saw its entire system as vulnerable because trucks and planes have been the "instrument of choice" of extremists such as Timothy McVeigh as well as Islamist terrorists.
Other companies that hold different views are as follows.
GM – For business reasons. OnStar, General Motors Corp.'s in-car emergency communications system, says it won't provide information to authorities, such as the location of a vehicle, unless presented with a warrant. "OnStar philosophy is to err on the side of customer privacy," says Terry Sullivan, an OnStar spokesman. He says the company fears the public won't buy the system if people believe it's being used for surveillance.
UPS – For principle reasons. Other shippers say they have refrained from granting a level of access similar to that of FedEx without court orders. At rival United Parcel Service Inc., spokesman David Bolger says the company won't disclose information about its customers' shipments unless required to do so by law or regulation.
US POSTAL SERVICE – For legal reasons. The U.S. Postal Service says it doesn't provide customer payment information without a warrant. In addition, postal officials say, law-enforcement agencies are prohibited from collecting information from envelopes and packages sent through the mail without a court order.
And here’s what the concerns expressed by a couple experts.
Lee Strickland, a retired Central Intelligence Agency analyst and a specialist in privacy issues, says the new cooperation between business and the government takes place in a legal "gray zone" that has never been tested in court. He says these relationships could undermine existing privacy laws that restrict what the government can do with information it collects directly from individuals. In general, the government can only use information for the express reason it's collected.
"Since you don't know what information is being shared and how it is being stored, or how it is coded or accessed, and since you don't know what the government is looking for, there is always a possibility that it could be factored into other decisions," says Mr. Strickland. He is now the director of the Center for Information Policy at the University of Maryland.
However, Fred Smith dismisses privacy concerns stemming from his company's cooperation with federal agencies. He says people already hand over tremendous amounts of information to the government, including personal-income data and details contained on a driver's license.
"As far as asking people to identify who they are, I don't think that's a real imposition. And to make that information available to the people protecting the public, I don't understand why that's as controversial as that has become," says Mr. Smith, who started FedEx 34 years ago after two tours of duty in Vietnam as a Marine officer. He says FedEx is willing to cooperate with federal authorities "up to and including the line on which we would be doing a disservice to our shareholders."
FedEx Pressed Ahead
In 2002, the Department of Justice, under then-Attorney General John Ashcroft, devised a program to create an army of domestic informants. Operation Terrorism Information and Prevention System, or TIPS, envisioned workers such as couriers, meter readers, utility companies, truck drivers, letter carriers and train engineers organized into a force that would "report suspicious, publicly observable activity that could be related to terrorism," the government said at the time.
When UPS first heard about the program, its officials told the Department of Justice their employees would not participate, says spokesman Mr. Bolger. "We said we don't have time and our employees don't know what to look for. We are not law enforcement," he says. After the collapse of TIPS, FedEx pressed ahead with its own program, one that embodied many of the same objectives, much to the delight of the government.
Mr. Bryden, the former security chief, says FedEx worked with Homeland Security officials last summer to develop a computer system that simplifies the reporting of suspicious behavior. FedEx spokeswoman Ms. Krause says the two sides met again in March and says the program should soon go through testing. The Department of Homeland Security declined to comment on the program.
"We secure our supply chain and help the country," says Mr. Bryden. "And we believe that's exactly what our customers want."
And, if you’re still interested in reading more, here’s a story about one of these FedEx employees working as a terrorist detector.
In December 2001, according to court records in Illinois, a FedEx driver became suspicious after making a series of deliveries of boxes to an apartment complex in suburban Chicago. The cartons were always the same size and shape and came from the same address in Los Angeles. Worried there was something sinister afoot, the driver informed his bosses and FedEx called the police.
Suspecting narcotics or explosives, the police showed up at the FedEx depot with bomb- and drug-sniffing dogs. The dogs didn't signal there was anything illicit in the boxes. FedEx then invoked the authority granted to it by every customer, which the police don't automatically have, permitting it to inspect any package without a warrant.
With a police officer looking on, FedEx popped the carton. Instead of anything dangerous, the boxes contained several hundred pre-recorded compact discs. Local police launched an investigation that eventually uncovered a CD-bootlegging operation.
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Come to think of it, my mom used to send me pictures she took around her home in Hawaii in the same size package month after month, year after year. I wonder if FedEx employee rent-a-cop program had started then... That may help explain why some of my mom's pictures came out so poorly.
After The Bell: Thursday 5/26/2005 Topping Action (Edited)
(Computer Associates after the bell earnings report is simply too important to be left out of this Thursday special update.)
First of all, it’s an impressive up day (except for OTC stocks). Today’s action was primarily credited to the revision of the first quarter GDP by all major media. Media have to find a reason for everything to write about. That’s how they get paid. Unfortunately, this revision of GDP had very little, if anything, to do with the market. For one thing, the revision actually adjusted down both the Exports and Imports of Goods. The import of goods was reduced by almost 40% while the exports was adjusted down by 6.45%. Does that signal a growing economy to anyone?
I’ll leave that for the weekend Chartmentary when I have more time. For now, let’s get technical. This is today’s market breadth in action as per Yahoo Finance. It would appear to be a strong rally in motion except for one thing that really threw me off. Let’s take a look at that.
The chart below is the Big Board Composite Index, New York Stock Exchange, with the TRIN (a.k.a ARMS) index overlay. It was appalling to see that today’s action had brought TRIN all the way down to the overbought territory of 0.680. Its 10-day simple moving average ended the day at 0.877.
TRIN (aka ARMS Indicator) was developed as a contrarian indicator with the intent of pinpointing the critical levels at which a market becomes “overbought” or “oversold”. According to Richard Arm’s original concept, a market was “oversold” when this indicator's 10-day moving average rose above 1.2. The market becomes “overbought” when it moves below 0.80.
By all means, this range between 1.20 and 0.80 serves as a reference point. Technicians would have to make the judgment calls based on its relativity. From TRIN’s current relative position to the market, I noticed that we may be looking at a topping action instead of a rally.
As you may see, whenever TRIN dropped to the bottom accompanied by declining volume, a major market decline seemed imminent. I’ll spend a little more time this weekend going over this. I was just compelled to bring forth this observation to your attention for now.
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Computer Associates Earnings & Accounting Issues
After the bell earnings report by Computer Associates (Symbol: CA), the 5th largest software company (Yes, it’s larger than the household names such as Adobe, Symantec, and McAfee, by market cap), failed to deliver the fourth quarter earnings that it promised investors last month. But, that’s not all. It also filed a statement with SEC to have as many as 4 years of earnings re-stated. CA said a number of contracts signed between 1998 and 2001 had been accounted for “improperly”.
But, that’s not all, for me. As I look at this chart, I wonder if anyone had already been aware of this ahead of the announcement. Today’s increase of 35% volume over the 10-day moving average with a long black candlestick looked intriguing.
Now all the nice folks contributed to those nice little positive volume bars leading up to its recent intraday high of $29.47 are going to be trapped.
HELP-WANTED ADVERTISING INDEX for APRIL 2005
Economy can not sustain growth without job creation. Jobs can not be created without help wanted advertising... The Conference Board’s Help-Wanted Advertising Index – a key barometer of America's job market – was unchanged in April. The Index now stands at 39. It was 38 one year ago. In the last three months, help-wanted advertising declined in seven of the nine U.S. regions. Steepest declines occurred in the South Atlantic (-12.4%), East North Central (-10.8%), and West North Central (-9.9%) regions.
Thomson Financial Top 10 Insider Selling 5/25/2005
Top 5 were oil and medical equipment companies. It's intriguing considering Occidental Petroleum (OXY) just had its senior unsecured debt rating upgraded to A- by Fitch. And the bulk sales by CEO and CFO was just tip of the iceberg. Looking further into the OXY company insider transaction, and it seems as though everyone's selling in May, from treasurer to secretary.
cat- Good to see you back posting.
We haven’t had a chance to compare notes since I found my way over here, but I’m sorry to hear what happened. Hopefully things are getting back on track for you.
Kerr McGee’s a good watchlist choice. Wachovia downgrade last week really did it in. It looks like it’s got a good chance of mending that gap and making that as its support.
That $72 area is most critical as it would hold the 38% Fibonacci Retracement as well as the 100-day simple moving average. And, that’s also where the gap is.
OBSERVATORY 015: MGM Mirage (MGM)
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Trade Talk: ZIP REALTY
I’m feeling just fine now, but I’ve been sick for almost 2 days. I don’t get sick much, but when I do, it’s usually quite dramatic. I had to stay in bed all day yesterday. I’ve got all of your PM’s and emails, and I’ll get back to you.
This is an important technical trade that I’d like to share with you. I was not clear-headed enough to document this trade when the order was filled on Monday. I did post this chart on CashCow board on Sunday night. http://www.investorshub.com/boards/read_msg.asp?message_id=6433250
Since I didn’t document it as it happened, we’ll just use this as a technical Trade Talk instead of a Trade Journal. But, for those of you who recognized this opportunity and shorted this stock, you should have a pretty good 7%-8% gain so far. Good for you.
For those of you didn’t follow my posts on other boards, this was the chart that I posted on Sunday night. I think the breakdown was pretty self-explanatory. But what’s really interesting was after the good news of existing home sales.
According to NAR (National Association of Realtors) April was the record month that had the best existing home sales ever. It rose 4.5% from March. Since I’ve been keeping track of this statistics as well, here’s the chart that shows the increase from 6.87 million units in March to 7.18 million units in April. It also bettered April last year by 5.74% (from 6.79 milllion units to 7.18 millin).
Apparently, this great news for real estate brokerages did nothing for ZIP Realty. Its price continues to slide.
And, why is that? We should all know the answer to this question. Why was there no bounce on this great news?
Something to think about…
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Financial Sense News Online 5/23/2005
http://www.financialsense.com/index.html
Thank you again to Mary Puplava for taking the interest in my writing. See upper lefthand corner.
FPL Hedge
billkat- I'm glad you could see the beauty of that strategy. Even if all of my precautions turn out to be false (FPL continues to go up), then I'd get stopped out of my short position in a timely fashion. And, I'd still have a nice long-term investment that's worth a lot more than before.
However, from both the fundamental and the technical point of view, the probability of that happening doesn't seem very high.
Have a good day, Bill.
PWER- One more look.
Good job, Ken.
That's just it. You can't win every trade, but you can win by percentage. That's what trading's all about. It's the game of probability. And I think your seasonality adds to that winning percentage.
On PWER, I'm not sure if it's going to go out yet. This 3-year weekly chart seems to indicate that the bottoming formation had just been completed at around that $4.00. And, it's trying to RE-establish that 3-year old support at around $5.00. BTW, that huge surge of negative volume in March could be anotehr indication that the final drop in price was done.
It may trade into a range before it makes its next move. But, in any case, that $4.00 bottom looks secured. The $5.00 support is going to be re-tested a few times. If it stays above that, then it could go much further.
FPL Group Inc. (FPL) Trade Journal
I own shares of FPL, a public utility (electric energy) holding company. One of its units, FPL Energy, is the world's largest owner and operator of wind turbines. I like its long-term outlook and the 6.50% dividend yield. We’ve also just got a 2:1 stock split. Wind power is going to be an important part of the alternative energy source for the future. So, all the fundamentals are quite solid. However, I’m going to short this stock that I own.
I’m documenting this trade because it’s one of the strategies I use to hedge some of my long positions against temporary down turn. And, I thought I’d share it with those of you interested.
One of the fundamental concerns I have is that the most important thing for wind power is the transmission lines. The 2-year tax credit emergency extension is due to expire at the end of this year. This uncertainty makes it difficult for this industry to attract investments in transmission lines.
The technical concern is that it had shown some technical weaknesses including a mini Head & Shoulders pattern. Please see chart below for details.
But, I don’t want to sell it yet because (1) I’d like to continue to receive those nice dividends, (2) I still like the long term outlook very much, and (3) I would hate to pay higher price to buy it back if my observation turn out to be false.
So, what do I do?
I went ahead and bought September $40 Put options @ $1.50 to hedge against this possible short-term downfall. If the price should fall to $37, I would suffer an 8.37% loss on paper without doing anything. With this position now hedged, I would have 166% gain on just the Put, or 16% gain based on the principle of the underlying stock.
Incidentally, the narrowing Aroon DOWN bottom signals that it's staying lesser amount of time in the troughs. This implies the reversal of spending more time at the top is due to happen. And, when Aroom DOWN spends more time at the top, the stock price is going to spend more time going down.
And, now let the game begin. We’ll sit back and watch the game.
Charting 1-minute Intraday with 3-minute SMA
No problem, Bill. Keep in mind that there are 390 minutes per trading day. So, a 3-minute interval represents 130 periods.
Charting the Intraday Simple Moving Average
When you're charting the 10-minute chart, you'd input 39 for the "Simple Moving Average" under the "Price Overlays" pulldown menu. And, for 5-minute chart, you'd want to use 78 (periods), and so on and so forth.
Incidentally, that IBM looks ready for shorting as well. So many opportunities so little time...
Yes, Bill. What's the technical question???
By the way, on that ZIPR chart, I thought the star candlestick topped out right at the $16 overhead resistance made it an even higher reliability of the trend reversal.
We'll see, Bill.
Have a great evening... What is thinking is unthinking...
Chart Talk: ZIP Realty (ZIPR)
David’s Weekly Market Chartmentary Sunday, May 22, 2005
SOMETHING ABOUT LAST WEEK'S RALLY
As I had expected in last Sunday's Chartmentary, the market had one of its best week since November last year. It would appear that this rally carries enough strength to continue, and I was about ready to go with the flow and turn in my new Chartmentary accordingly. But then, there's something that keeps bothering me.
This was the chart that made its début about a month ago. In my previous analysis I pointed out the inverse correlation between the market and the M2 minus M1. For new visitors, backing out M1 leaves M2 with just the savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds. This I believe is where a large portion of the money flows in and out of the market. I don't believe I've seen anyone using this indicator.
This chart below shows a reliable degree of inverse correlation. It would seem that money's leaving M2-exM1 for the stock market. While this indicates another upleg in the rally, the one-week lag time of the Fed's money stock report always put a little apprehension in my mind. In addition, the latest decline in M2-exM1, for the week ended 5/9/2005, was the slowest decline of the past two weekly declining cycles - the weeks ended 4/4/2005 & 4/25/2005.
That made me think twice about the real strength of this past week's rally.
Let me turn to another one of my favorite indicator for verification. As I've mentioned before, the breaks of the trendline signals a change of the market direction. Based on this indicator, our forecast had been right on the mark 2 weeks in a row. This 200-day Exponential Moving Average indicator seems to indicate the continuation of the rally as well.
This week, this 200-day EMA moved another notch higher. The tech sector was leading the charge. The Internet and the Computer Network sectors, in particular, looked unstoppable. And, Google started looking pretty good to me at this point. But, wait a minute! What's with that Consumer Non-Cyclical (bottom pane of the chart) also charging ahead of the market? It can not be.
This next chart shows that when the Non-Cyclicals running ahead of the market, the market tends to start reversing its uptrend. Intuitively, I believe that's when the investor's confidence starts to leave the market for the so-called "defensive" sector. Although other major indices demonstrate similar pattern, I used NASDAQ for comparison as this rally was led primarily by the tech sector. Were this investor's psychology to be repeated, then last week's surge of the Non-Cyclicals would mean that the market is due for a decline.
Fine. So, I noticed these little inconclusive negativities. So, what? No one's saying this is a strong market. There's going to be signs of weaknesses in this market. What's so unusual about that? I guess it's nothing unusual except that something just continues to bother me. It's never easy for me.
Something that Dr. Alexander Elder said about the volume that really bothers me - "Changes in volume provide clues as to whether trends are likely to continue or to reverse."
I went back to my 200-day EMA indicator and checked on the volume. As shown on the chart below, Friday's volume was 12% below the 2-week (10 trading days) exponential moving average. Now since Friday was a minor down day for the broad market, let's check on NASDAQ, which had an up day on Friday.
NASDAQ volume also showed a decline (9.76%). In addition, the Percentage Volume Oscillator (PVO) didn't break above the 0 line with all its strength last week. This is sign of a declining buying pressure.
"A breakout on low volume shows little emotional commitment to a new trend. It indicates that prices are likely to return into their trading range. Falling volume shows that the remaining bulls have a higher level of pain tolerance." --- Dr. Elder.
Volume as per Dr. Elder is the backbone of the market trend. This rally last week, while appeared bullish on surface, did not have the strong backbone to provide the necessary support for its continuation. Having recognized this landmine under the bullish surface, for an inquiring mind like mine, I needed another confirmation.
I'm not sure if the inverse correlation between the Dollar and the market is as a common sense amongst investors as I thought it should be. Without getting into all the fundamental details, this chart shows the technical inverse correlation between the two. Therefore, technically speaking, the rising Dollar is going to put pressure on the market. Dollar Index has been on a strong uptrend with approx. target of 90. This can not be good for the market.
Based on the above analysis, I'd stay away from long positions this week. It does NOT appear likely that last week's rally would carry on too much further.
David's Weekly Market Chartmentary 5/22/2005
Hope all's well with everyone here. It's been a very hectic trading week for me on option expiration week.
Just finished weekly market comment on the webpage. I'll post its entirety on my Trade Journal later this evening when I have more time.
Enjoy the rest of the weekend. What a beautiful day out!
http://www.davidyu.com/
Bank Index ($BKX) Final Technical Note Wrap-up
I've just compiled all the journal entries into one webpage for those of us chart monkeys that may be interested. It makes it easier to see the technical reason for this trade. I thought it's a good technical reference and reminder for myself as well.
just click on the Bank Index link under Trade of The Week.
I'll work on my usual commitment of my Weekly Chartmentary tonight.
http://www.davidyu.com/
xe2dy (Mr. Ed) Market Commentary
Yesterday's option expriatoin Friday was quite a hectic trading day for me. I was just exhausted by the time it's all done. After posting a couple messages on Bullwinkle's site, I had to chill out for the rest of the evening.
So, no posting here yesterday. But I received a nice email with a nice chart attached from my friend, Ed. B. (xe2dy). His comment and chart did raise good questions. Ed, I hope you don't mind.
And so, here it is, from Mr. Ed---------------------------
The percent of NDX stocks above the 50 MA increased this week by 36%! I know that would be expected after a prolonged move down, but still that's a lot stocks to have buy signals in such a short period of time. Brings to mind the word 'parabolic'!
The last time the above happened was just before the early September 04 pull back. That turned out to be the middle of a bull flag. Today's market doesn't have that type of external stimulation this time around.
--------------------------------End.
And, here's the original Mr. Ed. Young people may have a hard time trying to figure out why the lady would be called Mr. Ed.
Mr. Ackerman, You Too Must Repay Pension Payment
I agree with you. Social Security's gone and the pension's going... I wonder why most people didn't get mad yet. I gotta get going, but here's the story about a retired pilot who flew jets for your ex-employer for 26 years.
Have a nice weekend.
Mr. Ackerman flew corporate jets for Hughes Aircraft Co. for 26 years, delivering executives to meetings, to ski vacations and to second homes in places like Baja California and Taos, N.M. Though he loved being a pilot, he faced mandatory retirement at age 60 in 1992. He then plowed his savings into an 18-acre farm outside of Santa Maria, Calif., called Wind Willow, where he and his wife, Audrey, grew grapes to sell to wineries.
In 1997, Raytheon Co. bought Hughes Aircraft. Raytheon also gained thousands of retirees from Hughes and other companies it acquired that year -- in effect a portfolio of $5.6 billion in pension and health-care liabilities and $6.4 billion in pension-plan assets. To administer these benefits, Raytheon hired Hewitt Associates LLC.
Hewitt audited the plan and concluded that Mr. Ackerman's pension had been incorrectly calculated: The monthly rate was too high, it said. Like Mr. Craven, Mr. Ackerman was told he must repay all the money he was overpaid in a lump sum or within a year through installments.
Mr. Ackerman argued with the clerk at Hewitt's call center, who he said seemed unfamiliar with the type of pension Mr. Ackerman had with Hughes. Because pilots must retire early, Mr. Ackerman received a pension supplement until he reached 65. As the Ackermans understood it, Hewitt was saying that Mr. Ackerman had been getting the supplement for too long. Asked about this by a reporter, Hewitt declined to explain, saying it doesn't comment on specific clients.
The couple scrambled to find the details in old documents. They sent letters trying to make their case. "We couldn't prove that we hadn't been overpaid," Mrs. Ackerman says. "When your pension gets shifted from one company to another, there's no recourse. They've got you over a barrel."
Mr. Ackerman got the pension letter four days after learning that esophageal cancer that he'd been treated for had spread to his liver and lungs. He appealed to the pension plan to forgive the debt. While awaiting an answer, he began chemotherapy at a hospital near Santa Barbara.
There, he ran into a retired vice president of Hughes Aircraft and told him about his pension problem. A few weeks later, when he checked his mailbox, Mr. Ackerman found a note from the retired executive, with a personal check for $5,000. He also found a letter denying his appeal of the decision to dock his pension.
The Ackermans told the plan administrator that repaying more than $31,000 in 12 months would consume all of their pension plus most of their Social Security, leaving them almost nothing to live on. They said the administrator relented, and later in 2000 agreed to let them repay at a rate of $500 a month.
Mr. Ackerman poured himself into farm work, trying to provide more income to make up for the shrunken pension. He began grafting pinot noir grapes onto the root stock, hoping they would yield a higher price than the orange muscat vines he and his wife had planted. He also made improvements to the farm, fixing a roof and mending outbuildings, even as his 6-foot-4-inch frame dwindled to 140 pounds.
"He did all this work, even though he was really sick, because it was the only thing he could do to help me financially," Mrs. Ackerman says. "He was a very tough human being." Mrs. Ackerman, too, worked on the small farm, digging, pruning, "getting gophers." Together, the couple built a pump house.
Mr. Ackerman died in February 2002, aged 70. "He had a hard end," his widow says, not just because of the cancer but because of a feeling of betrayal. "After all those years of taking care of them, making sure they were safe, he felt like the company considered him a liar and a cheat."
After his death, she continued to work on the farm as Hewitt, which administered Raytheon's plan until 2003, deducted $500 from each monthly pension check. In August 2004, the overpayment was finally paid off. But for three months, Mrs. Ackerman says, $500 continued to be mistakenly withheld from each check, until she complained to Raytheon by phone and letter.
Asked about this, a Raytheon spokesman, in an email, said, "Raytheon regrets the Ackermans' unfortunate experience. When the $31,000 overpayment situation was discovered by the administrator of the plan, we worked with the Ackermans to minimize the impact on a mutually agreeable basis." He added, "In any large population, administrative errors can occur. Our policy is to correct them as soon as they are discovered."
Dollar is going to continue to rally for a while, and this is not good for the stock market.
Ed, my previous gold analysis projected Dollar Index to reach $89 level. I'll write up someting this weekend on Dollar. I'm just exhausted today, the big Option Expiration day. I had to switch in and out a dozen calendar spreads. The execution was unusually slow today, especially within the final hour. My brokers calls to the floor couldnt' even get a response in a timely manner.
It was a very hectic trading day for sure.
Gotta run... catch you later.
Mr. Craven first went to work at a company called Cyprus Mines in 1962 and left in 1979, a year when Amoco Corp. took it over. He returned to Cyprus two years later and retired in 1985.
(A few mergers and restructuring later, Mr. Craven's now on BP Pension Plan)
The first letter also said that based on Amoco's "sale" of Cyprus, Mr. Craven's pension was the responsibility of "a new plan sponsor," Foundation Coal Corp. The letter didn't further describe Foundation or mention that this had taken place nearly 20 years ago. But it said if Mr. Craven had questions about his benefit, he should direct inquiries to the coal company at an address in Maryland.
In a second letter about three weeks later, Fidelity advised Mr. Craven to write to its own office in Cincinnati or call a toll-free number. If he disagreed with the demand for repayment, the letter said, he could file a claim stating "the specific grounds upon which your request for review is based." That letter, it said, should go to BP's claims and appeals coordinator in La Canada Flintridge, Calif. The second letter outlined various appeal steps that would lead up to a final ruling by BP, after which Mr. Craven could go to court if he still thought he was due a BP pension.
Mr. Craven was stumped. Besides his vision problem, he didn't know how to research the history of corporate restructurings to try to determine the paternity of his pension. He had never heard of Foundation Coal. He wasn't a whiz at math, either, and didn't notice that his nearly 18 years of pension payments didn't add up to $18,363, as Fidelity said, but to more than $70,000.
I was so upset that my blood pressure shot through the roof after I read the story.
In the case of Mr. Craven, a pension administrator concluded that a different company should have been paying his pension throughout the years. But, owing to the vagueness of federal pension law, the administrator felt no obligation to pursue that other company, instead demanding that Mr. Craven repay.
You Must Repay the Pension Payment, Mr. Craven
For 18 years, Charlie Craven, a retired mine supervisor in Tucson, Ariz., received a pension of $348.48 a month.
But in late December, instead of a check, he got a letter saying an audit showed he was receiving the benefit in error.
"You must repay the overpayment of $18,363.44 in one lump sum by January 31, 2005," said the letter from the pension administrator. "If you are unable to make a one time lump sum repayment and wish to set up a repayment plan, your payments are as follows: $1,530.29 per month for (12) months." The letter added: "If you do not comply within the stated timeframe, the plan sponsor may take additional steps," such as reporting the "overpayment" to tax authorities or taking "more formal collection action against you."
Mr. Craven, who is 79 years old and nearly blind from macular degeneration, had a friend read him the letter. "How can they come to me all these years later and tell me this?" he asks. The monthly repayments would exceed his $1,080 monthly Social Security. ------------ Wall Street Journal
After The Bell: 5/19/05 Something Funny Happened, Again
Something funny happened again today on the way to the closing. After early morning rush of carried over trades from after hours, the market just went sideways. And, when it's ready to move lower at about 2:40, something happened. It started taking on a life of its own in the vacuum of any major breaking news or spectacular economic events.
As you can see the price action and the RSI was showing that the market’s just about ready to take a stab at the “inter-day” low (dotted line was yesterday’s closing price) at about 2:40 PM. Then, something happened.
I couldn’t get any of the major index minute charts to show volume. I’m using QQQQ 5-minute chart to show what happened today. 5-minute chart had smoothed out the day’s lows.
The only major news was Ford’s credit rating and the big bulk of purchase of GM shares. But, that was at 1:30PM. Anyway, guess as you may, something’s not quite right about this picture. I’d be very curious to see what tomorrow brings.
It won't be too good.