Panic of 1873

I have always been interested in history. Here is a comparison of our time to that of the 1873 panic. The Real Great Depression, here is the wikipedia article Panic of 1873.

A side note, the agriculture stocks continue to be beaten to a pulp. MON is at or close to a 52-week closing low. POT, CF, MOS all look like death. ADM is the only one not close to its 52 week low, and I believe that will not remain true for long. It is trading inside of a rising wedge, but it is also above most of its moving averages, which is bullish.

All the rail stocks I mentioned are very close to their 52 week lows, one of the last sectors to have succumbed to this bear market.

The indexes seem to be still range bound.

If you want to find bullish stocks, check out bespoke's list here.

EBS looks like an interesting short candidate, since it has started to move up parabolicly. But since it is a biopharm company, holding it overnight can be lethal. Also, just because it has started to move up parabolic does not mean it will stop, so picking a top can always be dangerous.

LOPE looks like a great IPO, closed today at a 52 week closing high.

Have a good holiday!

ADM

It is becoming harder and harder for it to make new highs. Looks like a rounded top to me.

Stop at 28.

Update: added line to show decreasing in volume on recent rise up.

SRS

Was a crazy move today.

Holdings

Simon Property Group Inc.	7.76%
Vornado Realty Trust	4.69%
Public Storage	4.56%
Equity Residential	4.31%
Boston Properties Inc.	3.99%
ProLogis	3.87%
HCP Inc.	3.59%
Plum Creek Timber Co. Inc. REIT	3.08%
Kimco Realty Corp.	2.90%
Avalonbay Communities Inc.	2.71%

Stocks Close to their Lows

The lows are all closing lows.

BIDU: CLOSE=104.54, 52WEEKLOW=104.54
BNI: CLOSE=75.89, 52WEEKLOW=71.55
BPT: CLOSE=68.04, 52WEEKLOW=65.01
CEA: CLOSE=8.56, 52WEEKLOW=8.56
CLB: CLOSE=54.0, 52WEEKLOW=51.79
CN: CLOSE=38.23, 52WEEKLOW=37.8
CNI: CLOSE=34.99, 52WEEKLOW=32.01
DBA: CLOSE=23.49, 52WEEKLOW=21.97
EEV: CLOSE=55.86, 52WEEKLOW=55.86
ERF: CLOSE=19.99, 52WEEKLOW=18.35
EROC: CLOSE=6.38, 52WEEKLOW=6.16
FXP: CLOSE=32.73, 52WEEKLOW=32.73
LUV: CLOSE=7.88, 52WEEKLOW=7.76
PBT: CLOSE=14.18, 52WEEKLOW=13.13
PDS: CLOSE=6.72, 52WEEKLOW=6.29
PGH: CLOSE=7.82, 52WEEKLOW=7.17
RIMM: CLOSE=38.43, 52WEEKLOW=37.2
UNG: CLOSE=23.68, 52WEEKLOW=23.27
UNP: CLOSE=49.05, 52WEEKLOW=46.9

Overbought

McClellan

Expect some pullback or consolidation.

The Best Performing Ultra Fund

Has to be DTO


No jerky movements, just straight up.

Ags still weak

A while ago I noted that ag stocks have been very weak.

POT made a new 52 weak low, ADM was down 4% today and CF is hanging off of its lows and looks like it wants to continue downward. I am surprised how well MON has held up. I really expect that the stock will be another -50% until it approaches any kind of bottom.

GOOG

Today offered a great entry point in the morning. If you have a position in GOOG a stop should be put below today's low, about 265, or 270 if you want to be more conservative.

Managing Loss and Position Size

Here is a simple way to manage your trades and your losses.

This is a VERY simple but helpful calculation that will make sure you take a limited loss and position yourself accordingly.

Desired Wiggle Room * Position Size = Max Loss

I use 'Desired Wiggle Room', as the amount which the stock can go against you before you invalidate a trade and call it quits.

Therefore,
Position Size = Max Loss / Desire Wiggle Room

As long as you know any two of these variables the other one should be easy to calculate. My preference would be to use this formula to determine my position size. Say I wanted to short GS as a day trade. I am only comfortable losing $300 on a trade before I give up on it. GS is trading at 68.9 and I think it has run out of steam. It could break above 69, but should quickly fall back down. So I want to allow this trade to go has high as 69.2 before I admit defeat. With this in mind I can position myself accordingly:

Position Size = 300 / .3 = 1000

So I can take 1000 shares short at 68.9 and have a stop at 69.2. This will limit my loss to $300 (assuming stop is hit exactly at 69.2 which it probably wouldn't).

If I feel like the position size is too big, or my 'wiggle' room is not sufficient, I can always change these params. Say I wanted to allow GS to run to 92.4 before giving up.

Position Size = 300 / .5 = 600

Goog Fibs

Market has been acting strong. Take a look at GOOG for a potential long. Here are the fibs from the IPO to the peak.



A closer look.


Usually a test of a trendline breaks on the 4th or 5th time. GOOG is approaching 20 DMA for the 5th time in recent weeks. I like it long but with a weak hand.

Coal

Coal prices are cheap.

I am done trading for the year. I will probably return early or mid January.

More ETFs

Yay. http://biz.yahoo.com/bw/081125/20081125005275.html?.v=1

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Weak Ags

Weak Ags: POT -1%, CF -1%, TRA +0%, MON +4%, SQM +5%
Strong(er) ags: IPI +10%, OS +9%, ADM +7.5%

This sector could not sustain a broad rally during today's bullish session. Makes me think that they have much lower to go. ADM has almost doubled from its bottom, it is looking rip for a short. However, I will wait for signs of weakness to show before I short.


Ideal short entry would be a break above 27, followed by a rejection.

Crack Spread

Again, this is not the exact crack spread, but we can clearly see that it is lower than it has been since oil peaked.

XLF

In my previous post I said

Since the XLF is the sector that is causing all the problems, lets compare it with QQQQ during the dot com bust. It went from 120 to a low of 20, an 83% drop. So by those standards, the bottom should be... 6.5 (ouch). Is that reasonable? It seems like a stretch since the height of the dot come bubble brought about huge valuations for companies, but then again this disaster should also take away huge valuations from banks. I would at least expect continued downside from here, hopefully not straight down like it has been doing lately.

It hit a low of 9.24 today (pretty much straight down). To hit a low of 6.5 we need another 30% move down (that is only 3 more days like today).

This market is crazy manage your risk, whether long or short!

Also watch out for a rally to test the recent breakdown (SPY at 84) in the indexes.

Today

Today felt like a low volume day, but I failed to realize how much volume was behind the buying at the end of the day.



I do not know what to think of this market. I can see it moving up, I can see it moving down, I can see it moving nowhere. I will continue to play this market anticipating and taking profits on small moves, until I have more confidence on the direction of this market. The recent action makes me want to be bullish, but this market is just pounding on death's door.


A soft landing to a bottom? I wouldn't bet on it.



Maybe what this market needs is REAL capitulation. A close below the lows for 3-5 days. Take anyone who does not want to be in the market out.

Market Timing Using DeMark

First, here are a few resources for what DeMark Sequential is.

DeMark TD Sequential: An Overview and Brief Tutorial
Impressive Signals From DeMark
Google Book Preview

I just came across DeMark very recently and decided to see how it works. I have read the first 2 links and gone through some of the book through Google. The book seems to complicate things beyond its simple appearance, so I just decided to stick with the PDF's description and keep it simple.

I will show examples of how the DeMark Sequential works on intraday 1 min charts to find reversals in this crazy crazy market. The first thing I must point out is that I would only recommend using this technique to find quick reversals. Usually these are counter trend moves before the primary trend continues. However, once in a while it does predict complete intraday reversals. You can also use the indicator to find conutertrend rallies which you can use to ADD to your position if you are confident in the trend.

I programmed DeMark sequential on TOS platform, with .5 being a buy signal, 1.0 perfect buy, -.5 sell, -1.0 perfect sell. One thing that the PDF does not go over is the fact that the signals should NOT be used after exactly 9 bars (especially true in this momentum driven market). In fact, from my experience a signal should be acted up when either 1) you see the trend weakening with dojis or a countertrend trend bars or 2) the signal actually goes away and you are still able to get a good price. Also, you should NOT chase any moves unless you really believe the trend is changing.

FYI, in this market the trend is DOWN, all charts are 1 min.

SPY

SPY gave a sell signal early in trading. After the 1 min red bar, you are given more confidence that the trend might be changing, but dont chase it!

The market proceeded to fall right to the VWAP, where it took a break and DeMark gave a buy signal.

This proved to be just consolidation before the next move down. Another buy signal is given at a lower level, followed by a few green bars (one being a hammer).


Here is more data you see the last buy signal market some sort of temporary bottom. You can also see big sell signal that only marked a very slight counter trend rally followed by another signal that market the exact top of the day.

Now, a look at a few individual stocks. I will try and show good examples, as well as bad examples. I will also try and look at volatile and boring days.

First, here is an example of why you must wait for the market to confirm the change in trend before you jump on using this indicator.

There was a buy signal for 15+min while SKF took a dive down. Notice that the rally (very small) happened right after the signal went back to 0. It is especially important to take precautions in this momentum driven market. Using the indicator to add to a short would have been the money making decision.

SHLD - things can go very wrong trying to pick a bottom in a bear market

The sell signal towards the end was a good signal to continue with a short in the primary trend.

MON

Sell the highs, buy the lows like a pro.

POT

In choppy market you can make quick $, but you must have good entry. This allows you to set stops just below/above the recent low/high and minimize losses, while still taking quick profits (good risk/reward ratio, here you want a .1-.2 risk with .6 reward in a 5-10 min time frame).

I can post many more examples, but I will continue to evaluate this on different timeframes and see what works and what does not. Here is the TOS code for the indicator.

input lookback = 4;

declare lower;

def buySeq;

if close[0] < buyseq =" 1;" buyseq =" 0.5;" buyseq =" 0;"> close[0+lookback] and close[1] > close[1+lookback] and close[2] > close[2+lookback] and close[3] > close[3+lookback] and close[4] > close[4+lookback] and close[5] > close[5+lookback] and close[6] > close[6+lookback] and close[7] > close[7+lookback] and close[8] > close[8+lookback] then {
if max(high[0], high[1]) > max(high[2], high[3]) then {
sellSeq = -1;
} else {
sellSeq = -0.5;
}
} else {
sellSeq = 0;
}

plot buySequential = buySeq;
plot sellSequential = sellSeq;

plot ZeroLine = 0;
ZeroLine.SetDefaultColor(Color.YELLOW);
buySequential.SetDefaultColor(Color.GREEN);
sellSequential.SetDefaultColor(Color.RED);

Here is an updated chart including 2 built in DeMark Indicators

SPY Volume Breakout

And there is still 1 hour left to trade.

End of day update:

Get Ready for the Lows

New lows coming soon, get ready to anticipate a significant rally once we significantly break the lows. I would not try to pick a bottom, just ride the rallies for a few points. The sellers will continue to step up. GOOG has a good chance of turning around now that it has broken 300.

SPY

Friday's lows and highs are important to watch. A break and a sustained rally/selloff will determine the markets direction. We might need more sideways action, but it seems that this market cannot stand still.

GOOG update

The horizontal lines I drew acted very well! 330 got a bounce to 340, then broke below. Now 310 seems to have some support. If this area is broken that means new lows for GOOG.

Ted Spreads

Ted Spreads have come down a great deal. This should help investor confidence and fuel a rally. Will 'all' the 'sideline' mine come back into the market to chase prices even higher? The reason for all the quotes is that I have doubts about how much of this money actually exists. But lets take it one day at a time and watch the inverse H&S formation pointed out in the previous blog entry.

Inverse H&S?

Courtesy of Trading with TK.

Futures are curiously +1.5% right now... not sure why.

Also, I have been sick last few days and not trading at all =(, which means I have missed the awesomeness of shorting MON or anything else in this market.

GOOG

Does not look too healthy.


A closer look, with some possible levels of support.


The trend is down.

McClellan

The McClellan oscillator says that we are still somewhat overbought. I also believe there could be some more profit taking to happen. The next few days should be neutral/bearish.

HW

For whatever reason I have stopped doing my stock hw on select nights. I figured this market is so emotionally driven that there is no point in looking at charts. This is especially true since 90% of stocks seem to simply trade with the market.

But I think it is time to stop being lazy and going through my charts again. Lets see what I can find tonight!

MON

Short, waiting for it to break 85.

SPY

Here are the fibs again.


We should be able to make it to the 1050 relatively easily. Futures are very strong right now, we are far behind Asia and emerging markets in this bounce!

Short

I can't help but still want to be short this market. It is just absurd how it acts. Selloff after the fed announcement, followed by a huge rally, followed by an even huger selloff. LVS moving up 80% on rumors of funding, WFC selling $25 billion of preferred stock to the government, stupid GE rumors.

I like MON short and SKF long, but I will not fight this market if it wants to go up.

A Look at Today's Move

Take a look at the daily chart of CLF. Today's candle was pretty small, almost an insignificant move up compared to the moves it has had before.



But look at the 1 minute chart

This stock was up 29% today! Don't underestimate the % moves we can have at these low low levels! Don't be afraid to jump on long during this panic buying, and be very scared to short in front of these trains.

S&P 500 Since the Bailout News

We are just back to where we were a few days ago!



Stay tuned (to the market, not me) to see if we can rally to at least the 50% retracement. I will play this market very neutral. Buy the dips, short the rips until one side proves itself stronger for the day.

Volume

The volume has been getting weaker recently.



Does that mean the sellers are almost done? I am not trying to be bullish here, since I think we can easily drift lower on low volume, but I am watching the markets to see if buyers will ever show up in force. This decrease in volume gives the bulls a chance to do exactly that. Until that happens, the easy trades are still to the downside!

Market Summary

I recently found the market summary page on stockcharts. Useful to find weak and strong sectors.

Crazy Buying at the End

FSLR action was an extreme example. I am curious to see how the late buying will affect tomorrow.

Dear Jim Cramer

Thank you for calling the bottom so many times.

http://www.cnbc.com/id/25932873
http://www.cnbc.com/id/26406036
http://www.youtube.com/watch?v=kgPzZJCTSLE
http://www.youtube.com/watch?v=dt8pd9xd2h4&feature=user

He needs to man up and admit his STUPID calls on air.

No Buyers? No Soup for You

We are forming a triangle. Odds favor a break in the direction of the current trend.

Rally or Fade

Ultra Short Basic Materials

SMN looks good if the market heads lower.

Flip a Coin

To figure out if we end tomorrow up or down. Does AAPL YHOO earnings bring on a rally? Or does this fade like all other rallies?

If the buyers truly step up, we can have a decent rally the next few days. But the sellers have consistently stepped in at every chance.

It seems that almost every stock I follow trends with the market. Some weaker, some stronger. What I have been trying to do is being long the stronger names when the SPY is headed higher and being short the weak ones when SPY is headed lower.

MON to 50

I am still very bearish on MON, but I wont fight it if it wants to go up with the market. Especially since this stock has been strong than most other ags.


You can see from this chart the my conservative target is 50, a more optimistic target would be 30. It has a PE of 24 and a FPE of 17. With other growth stocks trading at 3-8 PE, this one seems veeerrrryyy overvalued.

It will be hard not to take a short here though.

Right above the declining trendline and at the 50 DMA.

Bottoming Process?

Smooth bottoming process or secondary trend move up before the next leg down. Either way, it looks like the market wants to head up.

Be careful playing the long side! Here are a few ultra long ETFs for your consideration.

DIG - for the oversold energy stocks


QLD - for the 'resistant' technology stocks


URE - because real estate is bottoming (not really)


UWM - small caps are still crazy outperforming the big caps


UYG - because financials are now backed by the government, this one was very weak today


UYM - china is still growing and these stocks are crazy oversold

More Shorts

Forgot about these.

FSYS


CF

TED Spread and Libor

http://www.bloomberg.com/apps/quote?ticker=.TEDSP:IND

http://www.bankrate.com/brm/ratewatch/other-indices.asp

Still Bearish Ags

It seems as if the whole market trades the same. Every stock I saw on Friday was moving up as the SPY was moving up, and moving down as the SPY was moving down. So make sure you trade with the trend!

I like MON the best, but POT, AGU, MOS are all good.





Looks like the consolidation is going through, the next leg down should be here soon.

S&P 500 Since the Bailout News

Fibs

The huge 10% rally hit the 50% retracement from the lows. We are currently at the 23.6% mark. What do we do from here?


The vix looks very bullish here. An inverted hammer with the high in the 80s!!!! But note, just because the vix comes lower does not mean we have a huge rally.

Commercial Paper

Why doesn't the government sell bills, for 1% yield, take that money and make commercial loans at 4-6%?

They should make it very explicit that they are selling these bills to buy commercial paper. This will make the capital markets look like the sissies that they are. It will also make people realize that they could be getting the same higher yields.

Funny

It is funny how just a few days ago people were panicking to buy stocks at these levels. Where did the enthusiasm go? What does it take for stocks to be attractive? PEs with 10 multiple?

This chart is from April 10, 2008


So if we use the 1974 bear market as comparison to our market, we nee our trailing PE ratio to be around 8 before the bottom is found.

The same thing can be found here.


Currently I estimate that with S&P 500 at 900, the trailing PE is 17.4 (SPY PE shows 14ish, but I think these are a little old). That means we need a 50% price hair cut to return to 1974 lows. Going forward we expect earnings to drop more, requiring an an even bigger drop in price to bring us to a low PE.

So next time you hear that the PE ratios are attractive here, remember this.