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Technical Analysis : Week 09/09

 

This week the S&P500 Index closed well within the red zone by 48 points. This was a short week with every day posting losses. The first day of the trading week on Tuesday, the S&P500 index plunged without a fight as the candle closed at the low of the day. The market then had a hard time breaking down as the S&P500 index held quite firmly at the 780 levels. On Friday, the S&P500 Index gap below 780 and it threatened to break the November low of 750 until the announcement from the Obama Administration to say that banking nationalization was not part of their plans.

Looking at the 10-year chart on monthly candles, the S&P500 index is sitting slightly above the 2002 low of 768.63. The S&P500 index may or may not test the 750 level again for this coming week. Nonetheless the 750 is a very crucial level which will either see an upside bounce or a downward spiral. Don’t discount the possibility of a technical bounce as bargain hunters flood in and system traders get triggered at this critical level.

The immediate support levels will be S1: 750 followed by S2: 700 and S3: 650.
The immediate resistance levels will be R1: 800 followed by R2: 820 and R3: 875.

This coming week will be a tough week as the market will continue to be choppy. Financial stocks will be extremely volatile especially for Citigroup and Bank of America. Anxiety will rule as the market waits for Treasury Secretary, Tim Geithner to reveal more details about “The Plan. Let’s not forget Ben Bernanke’s Tuesday Monetary Policy Report.

Based on Friday’s close with the benchmarks’ candle formation ending as Hammers, expect a bullish reversal that may bring the S&P500 back up to 800. Monday will be the deciding day to see if there is indeed a reversal. The market has been due for a rebound for quite sometime.

The short interest in the market remains quite high especially in the financial sector. Short sellers will be looking to cover their positions at some point soon. This will create the technical bounce we’ve been talking about. And this bounce should come as no surprise and should not be read too deeply into as nowadays, the market is habitually over reacting to news especially with regard to the plan being drafted by the Obama Administration.

The best thing to do now is to do nothing. Wait for confirmation first instead of reacting to it as we are at a critical global economic crossroad. This is a battlefield for traders. Investors will get slaughtered unless they have the appetite to wait for more than 5 to 10 years. Therefore it is wise to position yourself with a small percentage of your investment capital rather than a “show all” huge commitment.

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Sector Rotation : Week 09/09

It’s the same story for this week, with all sectors posting big red marks in their report card. The same old leaders for the downside is Financials (-15.93%) followed by Energy (-9.81%), Industrials (-8.46%), Utilities (-7.51%), Consumer Discretionary (-6.06%), Technology (-5.52%), Materials (-5.14%), Health Care (-2.96%) and Consumer Staples (-1.21%).

Amongst the red is one really stand out sector. You will have noticed it if you had been studying the weekly ups and downs of the sectors. Health Care is the only sector that is performing consistently. When all the other sectors took a beating, the Health Care sector only shed a little blood and when the market was good, the Health Care sector led the way.

The Health Care sector includes a lot of smaller sectors and industries. If you had randomly picked a handful of stocks from its many industries, chances are, you’d be sitting on a tidy profit over the last two months. If you had put in a little diligence and looked over some fundamentals, you’d have streamlined the winners to have an increased profit margin. And if you had used technical analysis, you would not be suffering a loss at all.

But where does one pick out the juiciest (Industry) and the meatiest (Sector)?

We have done up an extensive report that covers the Health Care sector. You only need to sign up for the free newsletter to receive the complimentary inaugural report.

Gold stocks lag metal’s rise: Does it signal a bubble or breakdown?

Besides the Health Care Sector, Gold is currently the hot topic amongst investors and traders. I would like to warn readers to beware of catching the top of the run. Anything that is hot will eventually become a bubble and when that bubble bursts, the consequences will be nasty. It would be prudent to do a thorough analysis before timing an entry because what goes up has to come down sometime and you don’t want to be Bullish when gold goes Bearish.

16 Feb – 20 Feb

 

Consumer Discretionary	XLY	-6.06%
Consumer Staples	XLP	-1.21%
Energy	XLE	-9.81%
Financial	XLF	-15.93%
Health Care	XLV	-2.96%
Industrials	XLI	-8.46%
Materials	XLB	-5.14%
Technology	XLK	-5.52%
Utilities	XLU	-7.51%

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Market Analysis : Week 09/09

Posted by Conrad at February 19, 2009

“The DOW, as of last night’s close, is sitting just above the critical level of 7,500, having gone to 7,480 early in yesterday’s intraday session. Whether it holds above 7,500 is going to be crucial over the next two days. I, however, am not that hopeful and am expecting a major sell-off this Expiration Friday. If that really happens, then we won’t be far away from my 6,000 point target before May this year.”

The Dow Jones Industrial Average continues to show weakness and currently sits at 7,365.67. On Friday, the 3 benchmark indexes fought very hard to push back into positive territory after the Obama Administration declared that the Nationalization of banks is not part of their plan.

Posted by Conrad at January 2, 2009

“If you though that 2008 was a rough year, watch out … 2009 is going to get tougher! Expect more gyrations that could send the markets much lower than where it is now (DOW 8,776.39) …. although the DOW broke above the 50DSMA for the second time in two weeks, personally, I am not so hopeful - I suspect more downside before we get any upside. And we will test the Nov ‘08 lows of 7,500 before we can have any hope of it not getting down to 6,000.”

Now here we are at the Nov 08 lows. And it’s not looking rosy at all. We might get a technical bounce but that is all it will be … another dead cat for the collection. The DOW seems hell bent on taking my trend lines down to the netherworld - it has broken below my five months channels and is on the 38.2% Fan line. It is also below the 6 month OP to the downside with an XOP at, where else but 6,000 (5,930 to be exact).

Just a reminder about what I said on 1 Dec 08;

“So in summary, DOW for 6,000 on the low between now and May 2009 and daylight will not get much brighter than 9,500.”

Weekly candles are forming a Three Outside Down formation, which translates into a long-term downside, especially if the current candle closes lower on the week (conviction candle). DOW is also below the 11-year historical retracement line of 8,044 - this one is going to be hard to break above now that it has become a resistance.

Someone asked me at the TA Masterclass if there was any possibility of a repeat of the 90% loss suffered in the Great Depression. It was thought provoking, to say the least. Let’s consider that …

• Current levels of 7,500 bring the DOW back to Mar 03 levels. Five months before that Mar 03 low, DOW had a low of 7,200. From its Jan 00 high of 11,722, this represented a loss of 38.5%.
• The AFC in 97/98 took the DOW down to 7,400 from 9′350 for a loss of 20.8%.
• The Oct 87 low of 1,616 from the Aug high of 2,735 was a loss of 40.9%.
• In Oct and Dec 74, DOW hit average lows of 575 from a Jan 73 high of 1,067 for an average loss of 46.1%.

Current levels of 7,500 from the Oct 07 high of 14,160 put the current losses at 47%. We are at loss levels not experienced since after the GD of the 30s. Can we get there? There is always a possibility. But it will be one heck of a slim possibility if you consider that the whole world is fighting this thing with a collective effort.

However …

Those of you still harboring hopes of an early recovery, please be informed that the rest of this posting is really going to kill your mood.

The depth of this recession has forced dirty worms out of the cracks in the form of the Madoffs, Stanfords and Phuahs. Goodness knows how many more are going to get weeded out. The world would not have been the wiser if not for this terrible recession. China has also lost more than half its billionaires and the Trump is trumped again. If these are not signs of how deep in trouble we are, then one has to wonder what it will take to make people realize that we are in a world of deep s**t!

The ironic reality of this situation is that the pain level amongst citizens here in Singapore is not what I thought it would be in this recession. Or maybe in sunny and hazy Singapore, it hasn’t reached those drastic levels yet and that I am being too optimistic thinking that we should be there now rather than later.

Compare the pain levels of 1987, 1997 and 2001 and you’ll notice that we’re not hurting now as much as we did back in those years. What’s wrong with this picture is that if you consider that this recession is by far the worse we’ve ever had since Independence in 1965, then why are the pain levels not worse than those three preceding recessions? Or like I said, maybe we’re not there yet.

One of the reasons could be attributed to the ease at which we are able to attain credit to sustain the lifestyle or delay the pain. Personally, I see it as a time bomb waiting to implode. While the world aches, Singapore is buying condos at $1,000 psf. While some auto industries are on the verge of extinction and others are clinging on by their nails, Singapore has plenty of cars with SJM plates. Where’s the recession?

The spending habit of Singaporeans doesn’t seem to have changed and the average Singaporean seems impervious to this recession. Property prices are still considered on the high side yet people are still snapping up new projects like they were going out of style. Jan/Feb 09 New Home Sales is actually outpacing Jan/Feb 08’s numbers - and Feb 08 had averagely LOWER prices! People seem unaffected and won’t think twice about splurging on a two-bedroom condo for $1,000 psf (albeit at an ownership price that is below $500K for a condo) in Queensway while larger ready-to-TOP projects in Katong and East Cost, selling for $700psf are not moving as fast.

People are still buying cars, flashy ones at that, without batting an eyelid. COEs are going to get thin which will surely spike car prices. Yet talk on the street is that cars will still be affordable. But on the darker and quieter side of the business, owners are slowly returning their cars because the pain is starting to get to the owners of flashier cars now. These returned exotic cars are being sold by the dealers but the dealers are not buying back the cars to sell them. Soon enough, the sporty street cars are going to do the same.

Credit, or should I say, bad debts as a result of credit, is starting to take its toll. Car owners with 100% financing are now regretting their decision as crunch time dawns on them. Deferred-payment house owners/speculators are falling victim to a credit time bomb that has caught them on the upside as the market goes down. As TOP dates near, funds and financial muscles get severely tested and already, some have been found wanting. More and more people are building up unhealthy credit card bills and racking up the ready-credit interests. The number of credit defaulters appears to be increasing as indicated in the (lagging indicator) Classfied Ads’ Notices.
All this in the name of delaying the pain. And maybe that is why Singapore is not yet in full pain … we have credit to delay or stave off the pain.

Back in 1987 and 1997, credit wasn’t so accessible. I remember having to qualify for my first AMEX card in 1992 with a S$45K per annum income tax statement. I got my VISA and Mastercard Gold Cards with a $36K p/a proof. Today, credit arrives in your mail box in the form of a pre-signed check that only requires you to fill in your name and deposit it into your account.

If it was credit that got us into this mess and the lack of credit that squeezed out the likes of Madoff, Stanford and Phuah, then it seems that Singapore has not learned its lesson yet. Or maybe we are too confident in our Reserves. Although I accept our President’s reasons for releasing the funds, the general and undeniable consensus is that it was too quick and easy. And maybe for that reason, Singaporeans are counting on more.

We are not even near the pain levels of recessions past. No one has thrown himself off a rooftop and crime is not half as rife as it was back when. The pain has only just begun. Will credit save us? delay the pain? or destroy a few lives in the name of Interest Payable?

Another tiny statistic that scares me is the number of patients doctors are seeing … its less than average. One reason could be that minor ailments are no longer deemed important when you factor in the cost of treatment, especially amongst those who are already tightly strapped. Self-medication seems to have picked up. You only have to go the Guardian and watch the pharmacist - they’re busier than I’ve ever noticed. Another reason is that people may be realizing that MCs for a cold or cough are not a good way to recession-proof yourself.

The scary prospect of this trend is that when someone with a serious ailment doesn’t see a doctor, that person could be carrying the next pandemic and spreading it all around. And with all these little hotspots increasing around Asia, that possibility scares me.

Enough of the doom and gloom. Let’s quickly catch up on the market and see what happened …

Posted by Conrad at January 2, 2009

“For those who want to take more risks with the possibility of high returns can look at Gold ($XAU) …”

I also mentioned that at my Gatherings and in my forum that HMOs would be a safe buy too.

Those who got it are really reaping it big time today. For those who didn’t, wait for the next pull back because these two sectors have a few more up-waves left in them. Gold is going to be a little sticky, however, as $1,000 is going to prove a stiff resistance so you may want to wait for the breakout and confirmation before timing an entry.

All in all, there are opportunities abound in the equity, forex and bond markets. You only need to know where to look and how to do it safely. For now, let me leave you with a hint; watch the Biotech and Big Pharma sectors for the next two months.

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Foreword : Week 09/09

Foreword

“Well, it’s not quite the Bull run that geomancers were saying would happen in the Year of the Cow, is it?”

The market once again took a beating last week with another record-breaking quarter of slashed dividends. The Dow Jones Industrial Average went down 6.2% (7,365.67) following the S&P500 Index which lost 6.9% to close at 770.05 and the Nasdaq Composite which declined 6.1% at 1441.23 for the week.

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Feb ‘09 - Healthcare Sector - FREE!

This is the first of a continuing monthly Special Feature which I will be issuing the weekend after every Expiration Friday. Its aim is to bolster everyone’s knowledge of the many dynamic sectors, market patterns and economic cycles that make up any market and how, even in an economic nightmare like we have today, there are places where gains can be made.

For the inaugural issue, we’re looking at what we believe will be the biggest gaining sector for 2009, HEALTHCARE. In this report, we will be focusing on the four benchmark indexes of this sector, namely HMO (MS Helthcare Payors), BTK (AMEX Biotech), RXP (MS Healthcare Products) and DRG (AMEX Pharma).

To Download The Full Report, Simply Subscribe To The Pattern Trader Newsletter At The Top Right Corner Of This Page.

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Technical Analysis : Week 08/09

This week the S&P500 closed a volatile week (weekly range: 67 points) in the red by 42 points. We had 2 down days this week. Tuesday was the huge down day as the market was disappointed with the speech by Tim Guithner. The last 3 days of the week traded in a sideway fashion except for Thursday as it was a down candle till the last hour of the day.

Remember in the last report, it was mentioned;

“Technically, the S&P500 has broken away from a downward triangle. If Monday promises to be good or better, S&P500 is very likely to break or gap above the 880 point level to test the January high of 925 points.”

Well as we already know, Monday did not promise to be good and it did not even test the 880. Monday turned out to be a Doji day. This set up a perfectly big down day for Tuesday.

If you take a closer look at the chart, the uptrend line which I drew a few weeks ago was only slightly broken on the last day of the week. Things will be looking promising if it continues to trend according to the uptrend line. However, a break below will see the benchmark take the low road as it is sitting at the apex of both trend lines.

Thursday was a freaky day as it was another huge down day until 3pm when it hit a critical support level of 810. Coincidentally, the mortgage plan news leaked out at the critical support level and this fueled the market into a furious rally in the last hour to close slightly positive.

The key resistance level for S&P500 will be at the 880 (levels in blue). The key support level will be at the 818 (levels in red) with the psychological support level at 800.

Stocks to watch for the coming week are Wal-Mart, Hewlett-Packard, Deere & Company and JC Penney. These are the last of the big boys that are going to release their earnings and this will mark the close of the earnings season for Q1.

The market will be “back to business” again as the political influence for the week is minimal. The market will be slowly digesting the earnings for Q1. The market will also be looking for directional clues in the currency market as the dollar may decide to end a lot of speculation about its true value.

The equity market will most likely consolidate towards the downside as it will be busy testing key support levels. Expect this kind of movement be the trademark for the rest of February and possibly, March too.

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Sector Rotation : Week 08/09

This week is just the opposite of week 7 with all sectors posting losses. The leader for this week is Financials (-10.61%) followed by Industrials (-5.57%), Consumer Discretionary (-5.38%), Energy (-5.36%), Utilities (-4.56%), Materials (-4.34%), Technology (-3.87%), Consumer Staple (-3.32%) and Health Care (-2.49%).

In the previous edition, I mentioned that we would be talking about a sector that has been making great gains while the market has been tanking. I even broke this topic at the recently completed Technical Analysis Masterclass over the weekend.

The sector is actually “tagged” to a commodity and has been slowly creeping up for the past 4 months. It was only this week that it made such a big headline. I guess you guys will know this sector once I mention it. This sector is traditionally a recession proof sector. It’s Gold. Most of the money has been flying to the gold sector in a flight to quality. As gold has a limited supply, this will push up the price of the gold. The ticker symbol for the gold sector ETF is GLD.

Another speculative reason for gold’s spike includes the diluting of the dollar as the country tries very hard to save the economy by printing billions of dollars. However, not since 1974 has the U.S. dollar been valued against gold. After Nixon severed the gold-to-dollar peg, the dollar has been valued against another kind of gold … Oil. That is why we price oil in USD per barrel.

It is important to watch the price action of gold as it is approaching the 2008 high. This will determine if the gold sector is really booming or just another irrational sentiment based on fear.

9 Feb – 13 Feb

Consumer Discretionary	XLY	-5.38 %
Consumer Staples	XLP	-3.32%
Energy	XLE	-5.36%
Financial	XLF	-10.61%
Health Care	XLV	-2.46%
Industrials	XLI	-5.57%
Materials	XLB	-4.43%
Technology	XLK	-3.87%
Utilities	XLU	-4.56%

 

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Market Analysis : Week 08/09

The market paused on Monday just like the calm before the storm. Tuesday, the market plunged big time due to the fact that people were disappointed at the lack of details in Tim Guithner’s plan. The following sessions saw a lackluster market trading in a sideways fashion. Then on Thursday, the market went into Bearish overdrive. A late surge of buying at 3pm EST prevented the Dow Jones Industrial Average from plunging more than 200 points to close slightly positive. The buying frenzy was due to the up coming mortgage plan that is going to be announced this coming week which aims to stabilize the housing market.

“Buy The Rumor And Sell The News”

The Traders’ market is clearly at work just like the previous week. This kind of trading might just keep on going till the government stabilizes the whole economy. Last week, the market was really a classic example of “Buy the rumor and sell the news”.

“Upcoming housing, factory, layoff data could be as bad as any.”

This coming week, economic data will offer no sign of a bottom yet in the worst hit sectors. The US market will only start trading on Tuesday due to their national holiday on Monday. The only sign of relief might be the unveiling of the new mortgage plan.

This week, the market offers no clue whatsoever on what direction it might take. The market is likely to test key support lines. If it breaks successfully, the market will most likely test the November 2008 lows.

Once again I would like to emphasis that the market is still the Trader’s domain. This has clearly been defined in this week’s trading range. Any key resistance or key support will be tested. Thus if you are an investor, you might have to endure the pain of more paper losses in the near term. Therefore it is always wise to lock in some profits and make the investment as capital free as possible.

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Foreword : Week 08/09

“I think this was a mistake. I think I screwed up.” Said President Obama

The market puked last week because Tim Guithner failed to address the details of the TARP Plan v2. The Dow Jones Industrial Average led the plunged by 5.2% followed by the S&P 500 (4.8%) and the Nasdaq (3.5%).

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Technical Analysis : Week 07/09

This week the S&P500 index is up by 43 points. It was again a moderately volatile week (weekly range = 58 points) that finished very high up. We had 4 up days this week. Wednesday was the only down day with Financials hording the limelight led by Bank of America. The last 2 days of the week did not disappoint as the market looked forward to the details of the stimulus package which is likely to be announced this Monday.

Technically, the S&P500 has broken away from a downward triangle. If Monday promises to be good or better, S&P500 is very likely to break or gap above the 880 point level to test the January high of 925 points.

The key resistance level for S&P500 index will be at the 880 (levels in blue). The key support level for S&P500 index will be at the 818 (levels in red) with a psychological support level at 800.

On Candlestick patterns, I believe that we will see 4 rising white candles followed by a reversal on Wednesday. According to the Stock Market Almanac, usually when Friday ends higher, Monday will open higher too. This means that the resistance at 880 will be breached should the market gap up. With the resistance breached, traders will have no reason to short the market for now and will likely follow the crowd and go long. This prompts me to believe that this rally will be able to test the 925 mark.

As earning season winds down this coming week, the big boys being Loews, Nissan, NYSE Euronext and Coca-Cola, the market will start taking stock of the health of businesses for the next quarter and will either reel in fear or jump in with blind euphoria.

Expectations will be flying high next week as investor looking towards to the stimulus package. Already, the senators have agreed to a reduced package but details are what matters now. With all the hype going around and optimism filling the market, I expect a bullish week ahead.

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