Originally Posted by Conrad on Wednesday 22 February, 2012

Earnings Season officially comes to a close today AMC with the announcement of HPQ’s earings. Generally, it has not been a bad bunch of earnings but it has been broadly disappointing and under-whelming when compared to previous Quarter 1 performances after 2008. If earnings are an indication of the coming quarter’s trend, I have little or no faith that the market will be higher at the end of Quarter 2′s earning season in mid-May.

In the meantime, after Tuesday’s broad-based woeful performance, I reckon the Bears will be sniffing the air for a chance to take a swipe at this grossly overbought market. Last week was a case of the Bears shorting the market at the open and covering at the close. Tuesday seems to imply that the Bears have become a little more brazen and were shorting the close. If this pattern persists, we’ll see a much lower close by Friday and possibly by the end of February.

Direction for Wednesday 22 February, 2012; ∇ Down

Right off the bat, the Bears were in this with conviction. They then took the market down to test the Bulls who never really responded and surrendered the morning session to the Bears. The Bulls again had no answer going into the close as the Bear’s dragged prices down in the last two hours.

TECHNICALS & INTERNALS

Originally Posted by Conrad on Wednesday 22 February, 2012

The DOW was rejected at 13,000 three times in the session and eventually fell away by at much as 70 points in the last two and a half hours of trading. The DOW is now on a Deliberation Reversal (CQRC #31) pattern. NASDAQ is on an ugly Two Crows reversal (#29) and S&P wears a mixture of the Advance Block (#32) and Deliberation which also implies a reversal in the making. Incidentally, S&P is sitting just 1.4 points away from its 52 week high close after pushing up to 1,367.76 to test the the 52 week intra-day high of 1,370.58.

Point to note; if Friday’s volumes were one of the worse Expiration Fridays on average, Tuesday’s volumes on the benchmarks were woefully lower.

Stalled Patterns on DOW and S&P confirm yesterday’s analysis of Advance Block and Deliberation patterns. NASDAQ also confirmed its Two Crows by turning down sharply yesterday. This is possibly the start of a reversal or a downside consolidation on DOW and S&P and the start of a correction on NASDAQ.

Originally Posted by Conrad on Wednesday 22 February, 2012

Decliners outpaced Advancers by an average 1.28 to 1 on lower average volumes (-2.84%) on Tuesday (avg +2.67%).

Looks like the internals favor the bears … Down Volumes ($DVOL) marginally outpaced the Up Volumes ($UVOL) all through the session and closed out the session at even-stevens, Decliners ruled the whole session and the VIX closed higher at 18.19 +0.41 (+2.31%). This was more of a down day than up, no doubt about it.

Decliners outpaced Advancers by an average 1.77 to 1 on lower average volumes (-8.35%) on Wednesday (avg -0.35%).

Down Volumes outpaced Up Volumes by more than 2.5 to 1. The VIX closed unchanged after hitting a high of 18.94 but it would be prudent to note that the last two hours of trading saw the VIX rise from 17.93 to 18.33.

Originally Posted by Conrad on Wednesday 22 February, 2012

At first sight, it would seem that the whole curve rose up in a sign that money was flowing out of fixed income. But in actuality, money rushed into the bond market in the last 90 minutes of trading in a flood as fear gripped investors who were speculating on a mid-day break out in the equity market. This reversal was a significant move of the big money out of the risk market into safety.

Flattening took hold along the yield curve as the 2-10-yr spread tightened to 171 bps.

Treasury Yields AMC on Wednesday 22 February, 2012:
• 2 Year Note 0.29% -0.02
• 5 Year Note 0.88% -0.04
• 10 Year Note 2.01% -0.04
• 30 Year Bond 3.15% -0.05
2/30 Spread : 286bps ( -3 ) … 2/10 Spread : 172bps ( -2 )

The curve is right back to where it was on Friday and all it took was a bit of risk-off appetite. Expect yields to fall further before the weekend as the sell-off in the risk space picks up pace going into the end of February.

SUMMARY

Originally Posted by Conrad on Wednesday 22 February, 2012

It looks very much as if we’ve hit the top. This was not an up-day at all. Leadership was all over the place with Energy and Telcos leading while Staple and Health Care lagged. Financials, Industrials and Tech were not even in the game. Whether it was a down-day or not is something I will leave to Market Internals. Read on.

Thursday’s data includes initial and continuing claims (8:30), and the FHFA Housing Price Index (10). Treasury will auction $29 bln 7-yr notes.

Leadership on Wednesday was typical of a risk-off market with Energy and Utilities leading the way up, Health Care unchanged and Financials leading the way down in a big way (-1.3%). I’m staying bearish for the rest of the week and early into next week as tradition seems to be gripping the market along with the realization that earnings haven’t been that great.

Direction for Thursday 23 February, 2012; ∇ Down

2012 Daily Directional Accuracy: 26/34 (76.47%)

Pattern Trader Grads (WAT), click here to read the full detailed report.

Originally Posted by Conrad on Tuesday 21 February, 2012

Day after President’s Day is bearish with the S&P going down 7 of the last 11 and the week after Expiration Week is very bearish; DOW down 10 of the last 13. February is known to end poorly so I am going to continue being cautious and hedged. At the same time, I am not going to deny this rally.

At the time of writing this, the DOW Futures are up +45.00 (+0.35%). I am a practicing believer of the bearish final week of February and will continue selling into this rally. This market has to correct and it has to do it soon if March and April are to follow its tradition of being the most consistently bullish months of the year.

Direction for Tuesday 21 February, 2012; ∇ Down

It looks very much as if we’ve hit the top. This was not an up-day at all. Leadership was all over the place with Energy and Telcos leading while Staple and Health Care lagged. Financials, Industrials and Tech were not even in the game. Whether it was a down-day or not is something I will leave to Market Internals. Read on.

TECHNICALS & INTERNALS

Originally Posted by Conrad on Tuesday 21 February, 2012

The DOW is on a Three Inside Up and sitting at a 45 month high. Since this run started in 20 Dec, DOW has risen 10% without a decent correction. In December of 2010, DOW did a similar run from 11,007 to 12,391 by 18 February 2011 for a gain of 12.6% without a correction. The ensuing correction then took DOW down to 11,613 for a -6.3% correction. Support now looks firm at 12,750 and beyond that, it is a soft support at 12,600. NASDAQ’s run since mid-December last year is more serious than the other two benchmarks. It has literally gone up in a straight line for a 16% gain. Any correction from this lofty height might bring NASDAQ down to 2,800 in a hurry. There is the 2,875 support at last year’s Double Top high but I won’t count on that for any support should NASDAQ tank. S&P‘s run from that mid-December low took it up almost 13% without a decent correction. Exactly two months from the time it started that run, S&P is looking mildly overbought as it comes up against its 52 week high close at 1,363.31. Support for the broad-based index is around 1,345 and below that, we’re looking at 1,330 for some soft support before getting down to 1,310.

The DOW was rejected at 13,000 three times in the session and eventually fell away by at much as 70 points in the last two and a half hours of trading. The DOW is now on a Deliberation Reversal (CQRC #31) pattern. NASDAQ is on an ugly Two Crows reversal (#29) and S&P wears a mixture of the Advance Block (#32) and Deliberation which also implies a reversal in the making. Incidentally, S&P is sitting just 1.4 points away from its 52 week high close after pushing up to 1,367.76 to test the the 52 week intra-day high of 1,370.58.

Point to note; if Friday’s volumes were one of the worse Expiration Fridays on average, Tuesday’s volumes on the benchmarks were woefully lower.

Originally Posted by Conrad on Tuesday 21 February, 2012

Advancers outpaced Decliners by an average 1.17 to 1 on higher volumes (+11.04%) on Friday (avg +0.10%).

Just take a good look at the number of Decliners and compare it to all the previous DMAs this year. This was a major spike in declining stocks. The broader market, it would seem, is not as bullish as the benchmark indices would have us believe. Furthermore, Friday was February’s Expiration of time-based contracts and volumes ALWAYS increase by an average 25% on such days. Something was obviously lacking on this particular Expiration Friday. My assessment of the big and smart money movement last week seems to be getting more and more vindicated as more and more divergence reveal themselves … The VIX’s drop comes as no surprise. It is, however, still holding above is 17.50 support. If that support holds over the next couple of sessions, expect another major spike up as the smart money increases their hedges.

Decliners outpaced Advancers by an average 1.28 to 1 on lower average volumes (-2.84%) on Tuesday (avg +2.67%).

Looks like the internals favor the bears … Down Volumes ($DVOL) marginally outpaced the Up Volumes ($UVOL) all through the session and closed out the session at even-stevens, Decliners ruled the whole session and the VIX closed higher at 18.19 +0.41 (+2.31%). This was more of a down day than up, no doubt about it.

Originally Posted by Conrad on Tuesday 21 February, 2012

I am beginning to wonder about this slow and gradual rise in the curve. If the market is really as bullish as it seems to be, then why is big money still so stubborn to move out of fixed income safety?

Little change along the yield curve saw the 2-10-yr spread hold near 173.5 bps.

Treasury Yields AMC on Tuesday 21 February, 2012:
• 2 Year Note 0.31% +0.02
• 5 Year Note 0.92% +0.04
• 10 Year Note 2.05% +0.04
• 30 Year Bond 3.20% +0.04
2/30 Spread : 289bps ( +2 ) … 2/10 Spread : 174bps ( +2 )

At first sight, it would seem that the whole curve rose up in a sign that money was flowing out of fixed income. But in actuality, money rushed into the bond market in the last 90 minutes of trading in a flood as fear gripped investors who were speculating on a mid-day break out in the equity market. This reversal was a significant move of the big money out of the risk market into safety.

SUMMARY

Originally Posted by Conrad on Tuesday 21 February, 2012

This week’s bullishness doesn’t help the corrective cause. If anything it has made Shorting a very mouth-watering prospect. However, February is running out of time if this correction is ever going to take place. With this past week’s bearish tradition totally ruined, February only has seven sessions left to make that correction before we get into the traditionally bullish months of March and April. If it doesn’t correct, we are going to be seriously overbought by the end of April. And we know what’s waiting in May …..

Now I am stuck with only a handful of long positions and a couple of hedges while this market is increasingly creeping me out.

Wednesday will see just the weekly MBA Mortgage Index (7) and existing home sales (10). Treasury will auction $35 bln 5-yr notes.

Earnings Season officially comes to a close today AMC with the announcement of HPQ’s earings. Generally, it has not been a bad bunch of earnings but it has been broadly disappointing and under-whelming when compared to previous Quarter 1 performances after 2008. If earnings are an indication of the coming quarter’s trend, I have little or no faith that the market will be higher at the end of Quarter 2′s earning season in mid-May.

In the meantime, after Tuesday’s broad-based woeful performance, I reckon the Bears will be sniffing the air for a chance to take a swipe at this grossly overbought market. Last week was a case of the Bears shorting the market at the open and covering at the close. Tuesday seems to imply that the Bears have become a little more brazen and were shorting the close. If this pattern persists, we’ll see a much lower close by Friday and possibly by the end of February.

Direction for Wednesday 22 February, 2012; ∇ Down

2012 Daily Directional Accuracy: 25/33 (75.76%)

Pattern Trader Grads (WAT), click here to read the full detailed report.

Originally Posted by Conrad on Saturday 11 February, 2012

After the second best session last Friday (3 Feb), we get the worst session since December 2011. All it took was one session to wipe out a week of gains … But the truth is, its not enough. Although it was the worst session since December 2011, the market is going to have to correct some more if I am going to be tempted to buy anything going into March and April.

This week’s bullishness doesn’t help the corrective cause. If anything it has made Shorting a very mouth-watering prospect. However, February is running out of time if this correction is ever going to take place.

Originally Posted by Conrad on Monday 13 February, 2012

I am not prepared to go against technicals and tradition especially when both are pointing in the same direction. And with this week being traditionally bearish starting with Monday, I’ll be ready to sell more calls if I get a bearish entry today.

Direction for the week Monday 13 February, 2012 to Friday 17 February, 2012; ∇ Down

With this past week’s bearish tradition totally ruined, February only has seven sessions left to make that correction before we get into the traditionally bullish months of March and April. If it doesn’t correct, we are going to be seriously overbought by the end of April. And we know what’s waiting in May …..

Originally Posted by Conrad on Friday 17 February, 2012

(Monday 20 February is President’s Day – markets are closed.) This makes Friday the eve of a Three-Day Weekend which is supposed to be a bullish session. But February Expiration Friday is traditionally a bearish session and the last trading day before President’s Day is also bearish … confused? I know I am.

I am sticking with tradition and statistics even if the technicals say otherwise. I am still hedged and selling into this rally. But this weekend, I will have hardly any long Option positions left.

Direction for Friday 17 February, 2012; ∇ Down

So the Three-Day Weekend prophecy lives on … DOW breaks to a new 45-month high while S&P inches closer to its 52 week high and closes just 2.38 points shy. Now I am stuck with only a handful of long positions and a couple of hedges while this market is increasingly creeping me out.

TECHNICALS & INTERNALS

Originally Posted by Conrad on Friday 17 February, 2012

So the main concern on everyone’s minds is, “where do we correct to?” Technically speaking, 12,475 to 12,275 on the DOW, 1,295 to 1,280 on S&P and its a massive drop for NASDAQ down to 2,780. Not possible? With the exception of 2010, just look at the last 5 years and see what the last two weeks of February are capable of doing … Bullish Engulfing Patterns now dominate all three benchmarks after breaking to new highs. While the bulls are cheering this, I am getting worried that the over-due correction is going to get nastier with every new high the market breaks.

The DOW is on a Three Inside Up and sitting at a 45 month high. Since this run started in 20 Dec, DOW has risen 10% without a decent correction. In December of 2010, DOW did a similar run from 11,007 to 12,391 by 18 February 2011 for a gain of 12.6% without a correction. The ensuing correction then took DOW down to 11,613 for a -6.3% correction. Support now looks firm at 12,750 and beyond that, it is a soft support at 12,600.

NASDAQ’s run since mid-December last year is more serious than the other two benchmarks. It has literally gone up in a straight line for a 16% gain. Any correction from this lofty height might bring NASDAQ down to 2,800 in a hurry. There is the 2,875 support at last year’s Double Top high but I won’t count on that for any support should NASDAQ tank.

S&P‘s run from that mid-December low took it up almost 13% without a decent correction. Exactly two months from the time it started that run, S&P is looking mildly overbought as it comes up against its 52 week high close at 1,363.31. Support for the broad-based index is around 1,345 and below that, we’re looking at 1,330 for some soft support before getting down to 1,310.

Originally Posted by Conrad on Friday 17 February, 2012

Advancers outpaced Decliners by an average 3.04 to 1 on higher average volumes (+6.71%) on Thursday (avg +1.19%).

The VIX now wears a Bearish Engulfing Pattern and close below 20 points at 19.22 -1.92 (-9.08%). Internals were the most bullish for the week and there was little to fault about the authenticity of the rally. Interesting to note, though … Decliners pick up significantly and were more than I’ve seen in weeks.

Advancers outpaced Decliners by an average 1.17 to 1 on higher volumes (+11.04%) on Friday (avg +0.10%).

Just take a good look at the number of Decliners and compare it to all the previous DMAs this year. This was a major spike in declining stocks. The broader market, it would seem, is not as bullish as the benchmark indices would have us believe. Furthermore, Friday was February’s Expiration of time-based contracts and volumes ALWAYS increase by an average 25% on such days. Something was obviously lacking on this particular Expiration Friday. My assessment of the big and smart money movement last week seems to be getting more and more vindicated as more and more divergence reveal themselves.

The VIX’s drop comes as no surprise. It is, however, still holding above is 17.50 support. If that support holds over the next couple of sessions, expect another major spike up as the smart money increases their hedges.

Originally Posted by Conrad on Friday 17 February, 2012

The belly of the curve raised itself up (on Thursday) from its recent slump and steepened the curve – rather, straightened the curve – in a sign that the risk on trade might be back. But one session does not mean the market will continue the run.

The yield curve swung steeper this week as the 2-10-yr spread widened to 173 bps.

Treasury Yields AMC on Friday 17 February, 2012:
• 2 Year Note 0.29% unch
• 5 Year Note 0.88% +0.01
• 10 Year Note 2.01% +0.02
• 30 Year Bond 3.16% +0.02
2/30 Spread : 287bps ( +2 ) … 2/10 Spread : 172bps ( +2 )

I am beginning to wonder about this slow and gradual rise in the curve. If the market is really as bullish as it seems to be, then why is money still so stubborn to move out of fixed income safety?

WEEKEND COMMODITY UPDATE

Apr crude oil rallies past the $105 level in electronic trade on Monday 20 Feb

On Friday 17 Feb, Crude oil closed at $103.27 +0.9%. In electronic trading after the close, crude rallied past $104 and closed at $104.37/barrel, up a further +0.7%. Over the weekend, Iran cut off its supply of oil to Britain and France in anticipation of a planned EU embargo. On Monday 20 Feb, Crude oil hit a new session high of $105.80/barrel or +2.4% over Friday’s close.

PREVIEW FOR THE WEEK

TUESDAY 21 TO FRIDAY 24 FEBRUARY, 2012

There is no data on Tuesday. Treasury will hold a $35 bln 2-yr note auction.

Wednesday will see just the weekly MBA Mortgage Index (7) and existing home sales (10). Treasury will auction $35 bln 5-yr notes.

Thursday’s data includes initial and continuing claims (8:30), and the FHFA Housing Price Index (10). Treasury will auction $29 bln 7-yr notes.

Data concludes for the week on Friday as Michigan Sentiment – Final (9:55) and new home sales (10) cross the wires.

Earnings Highlights
Tuesday: BKS, BYD, CCO, HL, HD, JAKK, M, MDT, MYL, RSH, SKS, SHOO, WMT, WFT, CAKE, CQB, DELL, FST, HLF, KFT, LZB, GAME, TXRH, and WINN.
Wednesday: CHS, CWEI, CLH, DLTR, EV, GRMN, MGM, TX, TOL, ZLC, SAM, BEAT, CBOU, ESRX, FLR, HPQ, KBR, NUVA, PVA, QCOR, PPO, SMSI, and AUY.
Thursday: BRY, CKP, CMS, DANG, DISH, KSS, PCS, OMX, ZEUS, PKD, SWY, TASR, WWE, JOBS, MGA, MRVL, MDAS, MCP, NDSN, CRM, SD, TIVO, WBMD, and WMGI.
Friday: ANR, ENDP, JCP, NEM, POM, and AWK.

Economic Events
Tuesday:
None Scheduled.
Wednesday:
07:00 am MBA Mortgage Index
10:00 am Existing Home Sales
Thursday:
08:30 am Initial Claims
08:30 am Continuing Claims
10:00 am FHFA Housing Price Index
10:30 am Natural Gas Inventories
11:00 am Crude Inventories
Friday:
09:55 am Michigan Sentiment
10:00 am New Home Sales

Conferences and Shareholder/Analyst Meetings of Interest
Tuesday
- Enercom Oil and Gas Services Conference
~~ Scheduled to appear: GEOI, FXEN, UNT, EGY, BAS
- Mylan (MYL) Investor Day
- Ecofin Meeting with EU Finance Ministers
Wednesday
- Jefferies 2012 Global Clean Technology Conference
~~ Scheduled to appear: WPT, KIOR, DD, ALB, JASO
- Credit Suisse Global Paper and Packaging Conference
~~ Scheduled to appear: NP, SEE, PCH, RYN
- Gennett Co (GCI) Analyst Meeting
Thursday
- VDI Educational Seminar
~~ Scheduled to appear: PLUS
- Morningstar Ibbotson Conference
- 7 Year Treasury Auction
Friday
- Eaton (ETN) Investor Day
- San Francisco Fed President John Williams (voting FOMC member) to speak at 10:45
- Saint Louis Fed President James Bullard (not a voting FOMC member) to speak at 11:30

SUMMARY

Originally Posted by Conrad on Friday 17 February, 2012

Data turned out truly spectacular numbers and the market justifiably made a great run up the charts to break new highs. The DOW banged out a new 45 month high and closed above 12,900, something not seen since 19 May 2008. NASDAQ also punched up a new 11 year high at 2,959.85. S&P is very close to breaking its 52 week high close of 1,363.61 from 29 April last year. It closed at 1,358.04.

Day after President’s Day is bearish with the S&P going down 7 of the last 11 and the week after Expiration Week is very bearish; DOW down 10 of the last 13. February is known to end poorly so I am going to continue being cautious and hedged. At the same time, I am not going to deny this rally.

At the time of writing this, the DOW Futures are up +45.00 (+0.35%). I am a practicing believer of the bearish final week of February and will continue selling into this rally. This market has to correct and it has to do it soon if March and April are to follow its tradition of being the most consistently bullish months of the year.

Direction for Tuesday 21 February, 2012; ∇ Down

Direction for the week Tuesday 21 February, 2012 to Friday 24 February, 2012; ∇ Down

2012 Daily Directional Accuracy: 24/32 (75.00%)

2012 Weekly Directional Accuracy Year-To-Date: 05/07 (71.43%)

Pattern Trader Grads (WAT), click here to read the full detailed report.

Originally Posted by Conrad on Thursday 16 February, 2012

On Wednesday, leadership to the downside continued but Health Care, Consumer Staples and Energy were the lest affected. Volumes were comparable but overall, still on the weak side … Once again, the market has a slew of data to consider before the open and the way things have been going, I am not going to bet on good data bringing the market back up. It will take something spectacular to raise hopes again so marginal beats are not going to cut it in this environment.

Direction for Thursday 16 February, 2012; ∇ Down

I guess if you’re going to get it wrong, might as well get it wrong in spectacular fashion!  Data turned out truly spectacular numbers and the market justifiably made a great run up the charts to break new highs. The DOW banged out a new 45 month high and closed above 12,900, something not seen since 19 May 2008. NASDAQ also punched up a new 11 year high at 2,959.85. S&P is very close to breaking its 52 week high close of 1,363.61 from 29 April last year. It closed at 1,358.04.

TECHNICALS & INTERNALS

Originally Posted by Conrad on Thursday 16 February, 2012

NASDAQ is wearing a Bearish Engulfing – and it’s a fierce looking one. Just go back to 01 May 2011 to see what a similar pattern did to NASDAQ the last time it wore this pair of candles. Then look at 11 Nov 2010 … they are all Bearish Engulfing patterns after a break-out to new highs. S&P and DOW wear similarly ugly looking Evening Stars having broken below their respective supports of 1,345 and 12,800.

So the main concern on everyone’s minds is, “where do we correct to?” Technically speaking, 12,475 to 12,275 on the DOW, 1,295 to 1,280 on S&P and its a massive drop for NASDAQ down to 2,780. Not possible? With the exception of 2010, just look at the last 5 years and see what the last two weeks of February are capable of doing.

Bullish Engulfing Patterns now dominate all three benchmarks after breaking to new highs. While the bulls are cheering this, I am getting worried that the over-due correction is going to get nastier with every new high the market breaks.

Originally Posted by Conrad on Thursday 16 February, 2012

Decliners outpaced Advancers by an average 1.57 to 1 on lower average volumes (-11.31%) on Wednesday (avg -0.61%).

Now fear take s real grip on the risk trade and closes at a four-week high at 21.14 +1.60 (+8.19%) and successfully closing above the 20.50 retracement level. Up Volumes ($UVOL) were lagging throughout the whole session and it got worse as the day wore on by as much as 2 to 1. By the close $UVOL was at 2.57M while Down Volumes ($DVOL) closed at 4.80M

Advancers outpaced Decliners by an average 3.04 to 1 on higher average volumes (+6.71%) on Thursday (avg +1.19%).

The VIX now wears a Bearish Engulfing Pattern and close below 20 points at 19.22 -1.92 (-9.08%). Internals were the most bullish for the week and there was little to fault about the authenticity of the rally. Interesting to note, though … Decliners pick up significantly and were more than I’ve seen in weeks.

Originally Posted by Conrad on Thursday 16 February, 2012

There was no reaction from the bond market to the risk trade. Focus was predominantly on the Greek talks. This left the curve on a slightly steeper close with the shorter-term maturities unchanged. I can’t read into the curve yet as there is a little too much noise for now.

Today’s selling swung the yield curve steeper as the 2-10-yr spread widened to 172.5 bps.

Treasury Yields AMC on Thursday 16 February, 2012:
• 2 Year Note 0.29% unch
• 5 Year Note 0.87% +0.06
• 10 Year Note 1.99% +0.06
• 30 Year Bond 3.14% +0.05
2/30 Spread : 285bps ( +5 ) … 2/10 Spread : 170bps ( +6 )

The belly of the curve raised itself up from its recent slump and steepened the curve – rather, straightened the curve – in a sign that the risk on trade might be back. But one session does not mean the market will continue the run.

SUMMARY

Originally Posted by Conrad on Thursday 16 February, 2012

By the last hour (on Wednesday), it was clear that there would be no short covering today. Question is, do the late bulls still have what it takes to buy this dip on Thursday?

Data for the week concludes on Friday with CPI, core CPI (8:30), and leading indicators (10). There are no notable auctions.

Historical Trivia and Stats For This Day
• Expiration Friday (17 Feb) is rather bearish – DOW down 7 of the last 12
• Last trading day (17 Feb) before President’s Day is bearish – S&P down 16 of the last 20
• Monday 20 February is President’s Day – markets are closed

Looks like the bulls do have what it takes. But volumes remain an enigma – it is still at a consistent 13 week average but well below the 6 month average. Nevertheless, the market still has legs.

Please don’t forget that Monday 20 February is President’s Day – markets are closed. This makes Friday the eve of a Three-Day Weekend which is supposed to be a bullish session. But February Expiration Friday is traditionally a bearish session and the last trading day before President’s Day is also bearish … confused? I know I am.

I am sticking with tradition and statistics even if the technicals say otherwise. I am still hedged and selling into this rally. But this weekend, I will have hardly any long Option positions left.

Direction for Friday 17 February, 2012; ∇ Down

2012 Daily Directional Accuracy: 24/31 (77.42%)

Its the weekend and I am off to KL for a Booster with WATMY17 tonight, a Preview tomorrow and on Sunday, its the Candlestick and Breakout Patterns workshop.

The DMA won’t be back till Tuesday 21 February BMO as Monday is a trading holiday.

If you want to have something to be thankful for this weekend, be thankful for each breath you take, each smell you whiff, any sound you hear and every sight you see because there are many people out there who wish they could while you take it for granted.

Have a great weekend, everyone and don’t forget to spend it well with quality time, love and communication with your family and loved ones.

Pattern Trader Grads (WAT), click here to read the full detailed report.

Originally Posted by Conrad on Wednesday 15 February, 2012

The data on tap today shouldn’t spring any downside surprises but my fear is that in this nervous and overbought market, even data that is “not good enough” is going to be a catalyst for that long awaited correction. And given the increase in shorting and covering activity, it shows that the Sellers have nothing left to sell and that’s why they’re shorting. Plus yesterday’s session is a clear indication that the Buyers are not in the game anymore … not even at the closing 30 minutes.

Direction for Wednesday 15 February, 2012; ∇ Down

The market opened in truly funky fashion and two hours into the trading session, the DOW was down -28.99 (-0.23%), NASDAQ +21.23 (+0.73%) and S&P +3.25 (+0.25%) were up. Down Volumes were at 1.5M against 0.92M of Up Volumes and the VIX was up at 20.58 +1.044 (+ 5.32%).

By the last hour, it was clear that there would be no short covering today. Question is, do the late bulls still have what it takes to buy this dip on Thursday?

TECHNICALS & INTERNALS

Originally Posted by Conrad on Wednesday 15 February, 2012

Hanging Man Doji on DOW and SPX and an odd looking Hanging Man on NASDAQ. Honestly, I don’t know how to read this. It should have been Bearish Engulfing Patterns on the DOW and NASDAQ and S&P should have been wearing a Short Dusk Line. But after the 30 minute spike, I don’t know what to believe anymore.

NASDAQ is wearing a Bearish Engulfing – and it’s a fierce looking one. Just go back to 01 May 2011 to see what a similar pattern did to NASDAQ the last time it wore this pair of candles. Then look at 11 Nov 2010 … they are all Bearish Engulfing patterns after a break-out to new highs. S&P and DOW wear similarly ugly looking Evening Stars having broken below their respective supports of 1,345 and 12,800.

So the main concern on everyone’s minds is, “where do we correct to?” Technically speaking, 12,475 to 12,275 on the DOW, 1,295 to 1,280 on S&P and its a massive drop for NASDAQ down to 2,780. Not possible? With the exception of 2010, just look at the last 5 years and see what the last two weeks of February are capable of doing.

Originally Posted by Conrad on Wednesday 15 February, 2012

Decliners outpaced Advancers by an average 1.71 to 1 on higher average volumes (+5.76%) on Tuesday (avg -0.013%).

This was a down day without any doubt. The reason for that last 30 minute spike was short-covering amongst the blue chips and larger caps … without any doubt. Volumes on the benchmarks were very weak going into the close and that simply made any sort of squeeze a major move in the opposite direction. And it shouldn’t have come with any surprise because the covers were at 12,800 on the DOW and 1,340 on S&P. And maybe that’s why the NASDAQ was slower to respond because it was still a ways off its critical support of 2,910.

The VIX had climbed to its highest since 19 January at 20.76 from the low of 19.22 before retreating in the last half hour and closing at 19.54 +0.50 (+2.63%), still higher than Monday’s close. Fear is still haunting the risk trade.

Decliners outpaced Advancers by an average 1.57 to 1 on lower average volumes (-11.31%) on Wednesday (avg -0.61%).

Now fear takes a real grip on the risk trade and closes at a four-week high at 21.14 +1.60 (+8.19%) and successfully closing above the 20.50 retracement level. Up Volumes ($UVOL) were lagging throughout the whole session and it got worse as the day wore on by as much as 2 to 1. By the close $UVOL was at 2.57M while Down Volumes ($DVOL) closed at 4.80M

Originally Posted by Conrad on Wednesday 15 February, 2012

The curve had been flattening all session long and closed tighter even before the 30 minute spike in the equity space. The bond trade has always been a better indicator of the markets and going by the way yields behaved, there is some genuine fear about the risk-on trade.

Slight steepening took place along the yield curve as the 2-10-yr spread widened to 164.5 bps.

Treasury Yields AMC on Wednesday 15 February, 2012:
• 2 Year Note 0.29% unch
• 5 Year Note 0.81% unch
• 10 Year Note 1.93% +0.01
• 30 Year Bond 3.09% +0.03
2/30 Spread : 280bps ( +3 ) … 2/10 Spread : 164bps ( +1 )

There was no reaction from the bond market to the risk trade. Focus was predominantly on the Greek talks. This left the curve on a slightly steeper close with the shorter-term maturities unchanged. I can’t read into the curve yet as there is a little too much noise for now.

SUMMARY

Originally Posted by Conrad on Wednesday 15 February, 2012

If you woke up this morning and looked at the closing price of the indices and thought to yourself that it was a flat session, you are so very wrong! It was anything but flat. It was as if the market read my DMA and sensibly went down then answered my prayer and didn’t stay down.

Now, I really don’t know what to say … I am going to let Wednesday’s session tell me what it should have been.

And Wednesday’s session confirm my analysis and suspicions – it was a down Tuesday and it was indeed Short-Covering that made the close look good. Leadership on Tuesday also pointed to a market in full fear with Consumer Staples, Health Care, Utilities and Energy leading the market while the losers were Consumer Discretionary, Industrials, Financials and Materials.

On Wednesday, leadership to the downside continued but Health Care, Consumer Staples and Energy were the lest affected. Volumes were comparable but overall, still on the weak side.

Thursday’s data includes initial and continuing claims, housing starts and building permits, PPI, core PPI (8:30), and the Philly Fed (10). Chairman Bernanke will speak at the FDIC’s “Future of Community Banking Conference” (9).

Once again, the market has a slew of data to consider before the open and the way things have been going, I am not going to bet on good data bringing the market back up. It will take something spectacular to raise hopes again so marginal beats are not going to cut it in this environment.

Direction for Thursday 16 February, 2012; ∇ Down

2012 Daily Directional Accuracy: 24/30 (80.00%)

Pattern Trader Grads (WAT), click here to read the full detailed report.

Originally Posted by Conrad on Tuesday 14 February, 2012

Personally, I am praying we don’t go down today for obvious reasons. Sensibly, the market should correct. I’m torn. But I am also hedged and if the market does go down, that’s great for my portfolio and I might just jump into SPY Puts with the kitchen sink. But if it doesn’t I’m good but I won’t lighten my hedges yet.

Direction for Tuesday 14 February, 2012; ∇ Down

If you woke up this morning and looked at the closing price of the indices and thought to yourself that it was a flat session, you are so very wrong! It was anything but flat. It was as if the market read my DMA and sensibly went down then answered my prayer and didn’t stay down.

At 15:27EST, the DOW was down -58 and sitting below 12,800. I was writing the Market Internals; … This was a down day without any doubt… then at 15.30, the market started to spike. In the half an hour between 15:30 and the 16:00 market close, the DOW spiked 87 points to the upside and close +4.24 (+0.03%) to the upside.

*blank*

For an hour after the close, I sat there blank and dumbfounded.
So, was this an up day or down day? …
Is the Valentine’s Day Indicator bullish or bearish? …
Is this a genuine Hanging Man/Doji or was it supposed to be a Bearish Engulfing? …
Is this the middle of February or the end of June – why does this look like the June Portfolio Pumping? …
Was that Buying or Short Covering? …

Now, I really don’t know what to say … but at least I am not stamping my feet.

TECHNICALS & INTERNALS

Originally Posted by Conrad on Tuesday 14 February, 2012

That’s a Hanging Man on NASDAQ implying an end to the trend and a possible reversal. Here’s an interesting statistic – since the start of February, NASDAQ hasn’t had a single bearish session, meaning that in spite of two sessions closing lower than the previous sessions on the 6th and 10th, all nine sessions closed higher than the open. The last time NASDAQ closed lower than it opened was on the last session of January. This means that on daily candles, NASDAQ is due for a 10th Candle Reversal with a higher open and a lower close.

The last time NASDAQ did something similar was between 27 June to 8 July 2011. The ensuing correction in the weeks after the 10th Candle Reversal were tremendous. NASDAQ, it would seem, at above its six-month channel line having gone up in an unsustainable straight line since the start of the year.

And here is an alternative technical perspective of the DOW … Note the Price-to-Volumes divergence since October then the rally began and note the possibility of the end of a Wave 5 and note the XOP. I’ll leave you to draw your own technical conclusions.

Hanging Man Doji on DOW and SPX and an odd looking Hanging Man on NASDAQ. Honestly, I don’t know how to read this. It should have been Bearish Engulfing Patterns on the DOW and NASDAQ and S&P should have been wearing a Short Dusk Line. But after the 30 minute spike, I don’t know what to believe anymore. I am going to let Wednesday’s session tell me what it should have been.

Originally Posted by Conrad on Tuesday 14 February, 2012

Advancers outpaced Decliners by an average 2.68 to 1 on lower average volumes (-9.23%) on Monday (avg +0.73%).

$UVOL outpaced $DVOL for most of the session by an average 3 to 1. This was not a down day although it was divergent as volumes were considerably lower and the market did not pound out as many New Highs as it has usually done this year. In fact, this was the worse session for New Highs this year.

Decliners outpaced Advancers by an average 1.71 to 1 on higher average volumes (+5.76%) on Tuesday (avg -0.013%).

This was a down day without any doubt. The reason for that last 30 minute spike was short-covering amongst the blue chips and larger caps … without any doubt. Volumes on the benchmarks were very weak going into the close and that simply made any sort of squeeze a major move in the opposite direction. And it shouldn’t have come with any surprise because the covers were at 12,800 on the DOW and 1,340 on S&P. And maybe that’s why the NASDAQ was slower to respond because it was still a ways off its critical support of 2,910.

The VIX had climbed to its highest since 19 January at 20.76 from the low of 19.22 before retreating in the last half hour and closing at 19.54+0.50 (+2.63%), still higher than Monday’s close. Fear is still haunting the risk trade.

Originally Posted by Conrad on Tuesday 14 February, 2012

The curve tightened a bit as the shorter maturities pulled up more to flatten the curve to the upside. I don’t know what this means but at least the curve isn’t going down and the 10yr yield is only 1bps from -1par.

Today’s closing yield was the lowest for the 10-yr since February 4. Aggressive flattening of the yield curve saw the 2-10-yr spread tighten to 163.5 bps.

Treasury Yields AMC on Tuesday 14 February, 2012:
• 2 Year Note 0.29% unch
• 5 Year Note 0.81% -0.04
• 10 Year Note 1.92% -0.07
• 30 Year Bond 3.06% -0.08
2/30 Spread : 277bps ( -8 ) … 2/10 Spread : 163bps ( -7 )

The curve had been flattening all session long and closed tighter even before the 30 minute spike in the equity space. The bond trade has always been a better indicator of the markets and going by the way yields behaved, there is some genuine fear about the risk-on trade.

SUMMARY

Originally Posted by Conrad on Tuesday 14 February, 2012

14th February is Valentines Day, one of the most reliable sel-fulfilling indicators. The Valentines Day Indicator has been 100% accurate over the last 25 years;

• If Valentine’s Day was bullish, the year ended up.
• If Valentine’s Day was bearish, the year ended down.
• If Valentine’s Day was on a weekend or public holiday, the year ended up

I don’t know … don’t look at me. I might be the originator of this indicator but I have never had to deal with something like this! Maybe the VD Indicator is telling us that this year, we’re going to go down for a huge while then rally back at the end of the year … shit … if that really happens, I am going to patent this Valentines Day Indicator!

Originally Posted by Conrad on Tuesday 14 February, 2012

If you take away that opening spike in the first two or three minutes, this was a Doji-day on DOW and S&P. This was one of those gap-up-and-go-nowhere sessions that makes the indices look good but your portfolio won’t look as good. It was an up day, no doubt about it … but it was not a rally day, as analyzed.

Wednesday’s data slate is full with the weekly MBA Mortgage Index (7), Empire Manufacturing (8:30), net long-term TIC flows (9), industrial production, capacity utilization (9:15), the NAHB Housing Market Index (10), and the latest FOMC minutes (14). Dallas’ Fisher will speak at the Texas Manufacturers Summit (9:15).

No one is going to take this session from me. It was a DOWN day which was saved by an unnaturally over-cooked short-covering. If anything at all, two consecutive days of dubious openings and closings tells you that something’s afoot. Take heed and be cautious.

The data on tap today shouldn’t spring any downside surprises but my fear is that in this nervous and overbought market, even data that is “not good enough” is going to be a catalyst for that long awaited correction. And given the increase in shorting and covering activity, it shows that the Sellers have nothing left to sell and that’s why they’re shorting. Plus yesterday’s session is a clear indication that the Buyers are not in the game anymore … not even at the closing 30 minutes.

Direction for Wednesday 15 February, 2012; ∇ Down

2012 Daily Directional Accuracy: 23/29 (79.31%)

Pattern Trader Grads (WAT), click here to read the full detailed report.

MARKET REVIEW – MONDAY 13 FEBRUARY, 2012

Originally Posted by Conrad on Monday 13 February, 2012

We now stand on the verge of a second DFDM in three weeks. And with this week being traditionally bearish starting with Monday, I’ll be ready to sell more calls if I get a bearish entry today … At 11:45 SG, the DOW futures are up +61.00 (+0.48%), the Dollar is down at 78.915 -0.311 (-0.39%), gold silver and oil are all up, Asia is all up and European futures are up … With no data due out Monday, I reckon Friday’s fear will continue to run into Monday. One possibility is we could close in the green but it will be a down day. However you want to read it, I reckon it won’t be a rally day.

Direction for Monday 13 February, 2012; ∇ Down

Anyone want to take that analysis away from me? If you take away that opening spike in the first two or three minutes, this was a Doji-day on DOW and S&P. This was one of those gap-up-and-go-nowhere sessions that makes the indices look good but your portfolio won’t look as good. It was an up day, no doubt about it … but it was not a rally day, as analyzed.

TECHNICALS & INTERNALS

Originally Posted by Conrad on Saturday 11 February, 2012

DOW confirmed the Advance Block by smartly reversing on Friday. This now gives rise to the possibility of a second DFDM in three weekends for 2012. Behind the scenes, DOW’s 20 and 50 weekly averages made a bullish crossed over during the week to give the late bulls something to crow about. On weekly candles, this is the second fortnight that the DOW has Paused … NASDAQ punched out new 11 year highs all week till Friday brought that streak to an abrupt end with an Eighth Candles Reversal … of sorts. The Tech-heavy index seems to be sporting a Shooting Star on weekly candles. For now, that 2,900 support seems to be holding up well. But if it breaks below that, it is a clear 50-point drop to 2,850 and possibly a further 25 points down to 2,825 … SPX has fallen back on its 1,340 support in a confirmation of a Deliberation Pattern. It now wears an Ladder Top (Inverted Ladder Bottom – Pattern 39) suggesting more downside to come. Like the DOW, SPX has the possibility of a second DFDM in three weekends for 2012. On weekly candles, SPX wears a Doji after a Long Session Soldier, presenting the possibility of an Evening Star should next week be bearish. Support will be critical at 1,315.

That’s a Hanging Man on NASDAQ implying an end to the trend and a possible reversal. Here’s an interesting statistic – since the start of February, NASDAQ hasn’t had a single bearish session, meaning that in spite of two sessions closing lower than the previous sessions on the 6th and 10th, all nine sessions closed higher than the open. The last time NASDAQ closed lower than it opened was on the last session of January. This means that on daily candles, NASDAQ is due for a 10th Candle Reversal with a higher open and a lower close.

The last time NASDAQ did something similar was between 27 June to 8 July 2011. The ensuing correction in the weeks after the 10th Candle Reversal were tremendous.

NASDAQ, it would seem, at above its six-month channel line having gone up in an unsustainable straight line since the start of the year.

And here is an alternative technical perspective of the DOW …

Note the Price-to-Volumes divergence since October then the rally began and note the possibility of the end of a Wave 5 and note the XOP. I’ll leave you to draw your own technical conclusions.

Originally Posted by Conrad on Saturday 11 February, 2012

Decliners outpaced Advancers by an average 3.005 to 1 on lower volumes (-1.47%) on Friday (avg -0.73%).

The New Highs suddenly diminished and $DVOL totally dominated the session over $UVOL for all the session by an average 4.5 to 1. There was nothing divergent about Friday’s bearishness. Even that small amount of Short Covering in the last half-hour wasn’t that impressive … The VIX confirmed Thrusday’s divergence by opening above 20 points and closed higher at 20.79 +2.16 (+11.59%). As expected, the VIX broke above its 20DSMA but was rejected by the 50DSMA at the high of 21.98. It’s an almost identical repeat of February last year.

Advancers outpaced Decliners by an average 2.68 to 1 on lower average volumes (-9.23%) on Monday (avg +0.73%).

$UVOL outpaced $DVOL for most of the session by an average 3 to 1. This was not a down day although it was divergent as volumes were considerably lower and the market did not pound out as many New Highs as it has usually done this year. In fact, this was the worse session for New Highs this year.

Originally Posted by Conrad on Saturday 11 February, 2012

So maybe I was right about Thursday’s divergence in the yield curve. Friday confirmed the flight-to-safety that I had suspected should have and was going to happen. The curve is generally unchanged from last Friday in spite of risk-on the gains made from Monday to Thursday. Fear is running deep again.

Today’s flat session saw the 2-10-yr spread finish at 172 bps.

Treasury Yields AMC on Monday 13 February, 2012:
• 2 Year Note 0.29% +0.02
• 5 Year Note 0.85% +0.04
• 10 Year Note 1.99% +0.03
• 30 Year Bond 3.14% +0.03
2/30 Spread : 285bps ( +1 ) … 2/10 Spread : 170bps ( +1 )

The curve tightened a bit as the shorter maturities pulled up more to flatten the curve to the upside. I don’t know what this means but at least the curve isn’t going down and the 10yr yield is only 1bps from -1par.

SUMMARY

Originally Posted by Conrad on Monday 13 February, 2012

I’ve got a feeling today is one of those days where I either get it spot on like a hero or horribly wrong like a fool. But I am not prepared to go against technicals and tradition especially when both are pointing in the same direction.

The long stretch of little or no data comes to an end. Action should pick up tomorrow, Tuesday, as retail sales, retail sales ex-auto, export prices ex-ag., import prices ex-oil (8:30), and business inventories (10) are all released. Philly’s Plosser will give his economic outlook in Delaware (8:45).

14th February is Valentines Day, one of the most reliable sel-fulfilling indicators. The Valentines Day Indicator has been 100% accurate over the last 25 years;

• If Valentine’s Day was bullish, the year ended up.
• If Valentine’s Day was bearish, the year ended down.
• If Valentine’s Day was on a weekend or public holiday, the year ended up

Personally, I am praying we don’t go down today for obvious reasons. Sensibly, the market should correct. I’m torn. But I am also hedged and if the market does go down, that’s great for my portfolio and I might just jump into SPY Puts with the kitchen sink. But if it doesn’t I’m good but I won’t lighten my hedges yet.

Direction for Tuesday 14 February, 2012; ∇ Down

2012 Daily Directional Accuracy: 22/28 (78.57%)

I took the result because I was more on than off in my analysis and the market really didn’t rally. FYI a red arrow doesn’t always imply that the market will tank and a green arrow doesn’t always imply a bull run either. I am looking for green and red sideways arrows to include in future analysis.

Pattern Trader Grads (WAT), click here to read the full detailed report.

Originally Posted by Originally Posted by Conrad on Saturday 11 February, 2012

From Monday to Thursday, the market had to fight back from early rounds of massive profit taking. This all came to pass on Friday when the market no longer wanted to fight back anymore after opening to the downside by -110 points on the DOW. After the second best session last Friday, we get the worst session since December 2011. All it took was one session to wipe out a week of gains.

We now stand on the verge of a second DFDM in three weeks. And with this week being traditionally bearish starting with Monday, I’ll be ready to sell more calls if I get a bearish entry today.

After the close on Friday 10 Feb, amongst the 30 DOW components, 14 were up averagely +0.21% (short-covering?), 4 were unchanged and 12 were down averagely -0.20%;

Trading Up:

KFT (+0.54%), BAC (+0.37%), MRK (+0.37%), HPQ (+0.31%), MSFT (+0.25%), JPM (+0.24), AA (+0.19%), CVX (+0.16%), PFE (+0.14%), GE (+0.13%), CSCO (+0.08%), XOM (+0.07%), DD (+0.06%) and MCD (+0.03%).

Unchanged:

AXP, DIS, JNJ and KO

Trading Down:

IBM (-0.01%), INTC (-0.02%), CAT (-0.03%), TRV (-0.09%), BA (-0.13%), MMM (-0.15%), PG (-0.16%), VZ (-0.21%), T (-0.23%), HD (-0.31%), UTX, (-0.50%) and WMT (-0.53%).

Don’t forget to watch (and trade it if you get a chance) the Defense Sector ($DFX). The Singapore Airshow, Asia Largest Aerospace and Defence Event is on 14 to 19 Feb 2012 (Click here to visit website). The show is known to generate record sales even if it is only the third biggest show in the world but the largest in Asia. Anticipation always runs high when the Singapore Air Show nears and such stocks do always climb. Add the possibility of unrest brewing into full-blown military violence in Syria and Iran and you have a sector that’s ripe for picking if you can catch a correction.

Pattern Trader Graduates (WAT), click here for more details.

Economic Highlights for Monday 13 February, 2012

Monday before Expiration Friday, DOW down 5 of the last 7.

There is no data on Monday.

Earnings Highlights
BMO: KVHI, DBD, SRI, ARTC, DW, MFA, ORBK, DQ, ISS, HMA, MAS, UCTT, USTR, LPS, TAL and RGC.
AMC: ASIA, SKH, CRL, FIS, GPRO, NSIT, LPSN, SGEN, CUTR, LLNW, RAX, HIMX, AERL, CCM, FFN, NOAH, and TUDO.

Economic Events
None Scheduled.

Conferences and Shareholder/Analyst Meetings of Interest
- Barclays Bank PLC Big Data Conference
~~Scheduled to appear: EMC, MLNX
- NOx-Combustion/PCUG Conference
~~Scheduled to appear: FTEK
- BIO CEO and Investor Conference

SUMMARY

Originally Posted by Originally Posted by Conrad on Saturday 11 February, 2012

DOW confirmed the Advance Block by smartly reversing on Friday. This now gives rise to the possibility of a second DFDM in three weekends for 2012 … SPX has fallen back on its 1,340 support in a confirmation of a Deliberation Pattern. It now wears an Ladder Top (Inverted Ladder Bottom – Pattern 39) suggesting more downside to come. Like the DOW, SPX has the possibility of a second DFDM in three weekends for 2012.

At 11:45 SG, the DOW futures are up +61.00 (+0.48%), the Dollar is down at 78.915 -0.311 (-0.39%), gold silver and oil are all up, Asia is all up and European futures are up.

I’ve got a feeling today is one of those days where I either get it spot on like a hero or horribly wrong like a fool. But I am not prepared to go against technicals and tradition especially when both are pointing in the same direction. With no data due out Monday, I reckon Friday’s fear will continue to run into Monday. One possibility is we could close in the green but it will be a down day. However you want to read it, I reckon it won’t be a rally day.

Direction for Monday 13 February, 2012; ∇ Down

Direction for the week Monday 13 February, 2012 to Friday 17 February, 2012; ∇ Down

2012 Daily Directional Accuracy: 21/27 (77.78%)

2012 Weekly Directional Accuracy Year-To-Date: 05/06 (83.33%)

Pattern Trader Graduates (WAT), click here to read the full detailed report.

This week’s thought comes from my reply to someone who asked me something about the market in a way that most people would ask – as if Traders knew the future …

Conrad,

where do you see the economy heading? …

what do you think the market is going to do? …

is XXX a good buy now? …

will the property market collapse? ...”

Many people have this perception that I am some Visionary, Guru or Master … I am not. I am just a trader, some say a really good trader. That is all I am. In their wrong perception of who I am and what I do, they get the notion that I am able to tell what the market is going to do or which stock is going to make the next move.

I don’t. Like everyone else, I can’t see the future.

Read the full article here.

After such a dour close to 2011, January 2012 was such a welcome contrast! In the December Sector report, I wrote;

If history repeats itself, we’re in for an extremely volatile time with the huge swings from 2011 carrying on into 2012. How the year finishes will depend on how January behaves and what the Bond yield curve does.

This has been the best January since, believe it or not, 1997!! This puts to bed, the January Barometer question. Together with the First Five Days of January, indications are for a bullish year or at worst, a year that shouldn’t go negative.

The First Five Days closed to the upside giving the market a hint of the direction for the rest of the month of January. Now that the January Barometer has closed to the upside, this should give the market some sort of direction for the rest of the year. But before we get carried away with the statistics, let’s not forget that last year’s bullish January Barometer did not equate to a bullish year as most of the year was volatile and sideways with nary a gain on the DOW by the end of the year and the S&P closed flat. NASDAQ was negative. Then again, the January Barometer is not known to fail miserably unless there was government intervention in terms of stimulus or fund injections.

As of Tuesday’s close, the DOW closed 411.72 points (+3.37%) clear of the year’s open. NASDAQ closed 156.45 (+5.89%) points above its January open and SPX closed 53.55 points (4.25%) up.

With that, we can now look forward to more indicators for more confidence starting with the Valentine’s Day indicator and the December Low indicator at the end of Q1.

The VIX (above) fell in January from 22.95, dropping three and a half points to settle at 19.44 at the close of Tuesday (chart above). This would suggest a low level of fear that almost invites complacency. And if you look at monthly candles, it paints a scary picture that started with a Bearish Engulfing pattern (Sep and Oct) that brought the VIX down in four consecutive bearish candles. This gives birth to the possibility of a fifth candle reversal in February. Support for the VIX has been good at 18.25 in the past week and if it holds firm, the market could be in for a new round of fear in February.

Having completed half the earnings season, the market seems to be unconvinced about rallying any further. To add to the worry, last Friday’s GDP numbers came in under expectations in spite of showing an expansion in growth with a 2.8%. Expectations had been for 3.2%. By and large, the various economic data had been pointing to an American recovery, albeit a really slow one – employment is picking up, manufacturing and production is better than a year ago, inflation is not going up anymore, housing is still weak and earnings haven’t been all that bad.

But yesterday, Consumer Confidence, Chicago PMI and the Federal Budget threw a huge spanner into that recovery spirit. Now we have new worries to bother the American economic recovery. Plus, we have the all-important Non-Farm Payrolls this coming Friday. This is going to be a rocky start to February … and February is famous for being the weakest month of Q1.

Global circumstances will continue to plague the biggest economy in the world. As Europe grinds to a crawl, China slows. As China slows, it drags Asia along with it. As Asia trudges along, America shoulders the weight.

Depressing, isn’t it? That’s why it’s called a Depression.

Read the full report plus the February Preview here.