Entries Tagged 'Market Commentary' ↓

Sell in May and go away, a slogan referred to when traders and investors go flat (hold no positions) over the summer. If traders and investors took part in the sell in May and go away theory this year, many would probably have some catching up to do as they are lagging the indexes.

I traded the failed head and shoulders pattern in July, but quickly reversed the trade after breaking up through and holding the neckline. Too many people were shorting the head and shoulders pattern in July and when a few people stepped in to buy; those who were shorting got stopped out. With September around the corner, is it time to sell?

As the market seems to keep going higher, some stocks are getting ahead of the underlying fundamentals. So, why have we not seen a pullback? Whenever the market looks like it wants to pull back, fund managers, retail investors, and others are piling in with hopes of catching up to the indexes. Afraid they will miss the next move higher. The current market just doesn’t want to sell.

Looking at the chart below, the S&P 500 volume is thinning out while making new highs. Recent volume has been concentrated in just a few companies.

Although the S&P 500 is in a nice upward trend, many others and I think there will be a correction. The $64,000 question is when and how much? One thing I learned quickly in trading is that if most investors and traders suspect it, then most likely it will fail. How many times did investors and traders call a bottom on the way down to the March lows? I think the head and shoulders pattern failed because it was a one sided trade…everyone was short, including myself.

While I think a pullback is near, I remain bearishly long. My trading portfolio is currently flat while my income portfolio is loaded with preferred stocks and junk bonds. However, as the markets continue to rise, so do my stop loss orders. Maybe, September will show us what is next to come.

Looking at the markets today, five technical indicators may show the market is headed down but do not be too quick to pile in on short positions.

Looking at the chart below you can see five technical indicators that may signal the market is heading lower. Here is a list of the five indicators and why they might be saying to get out of long positions as the markets heads toward a possible correction.

1. Stochastics – looking at the daily chart below, you can see the stochastics have turned over. I like the slow stochastics but needs confirmation from other indicators.
2. Resistance – the S&P 500 is stuck around 950 for about 2 weeks now and is unable to close above 950. The market is currently in a range with 950 as the upper number. No a reason to go short but a good reason to sell long positions and look for a better entry level.
3. Volume – has slowly decreased as the market headed higher. As the market reached the 950 level (resistance mentioned above), volume is declining which is an indication that traders do not want to buy at these levels.
4. Trend Line Broken – the current uptrend line dating back to March is broken.
5. 200 Day Moving Average – this is probably one of the most important indicators on a daily chart. Although the S&P 500 has yet to break down through the 200 DMA, it may be coming. The S&P 500 just broke through the 200 DMA to the upside about 2 weeks ago and maybe in a retest of the 200 DMA; which is one reason not to get short, right yet. If the S&P 500 breaks through the 200 DMA, you may want to start hedging or placing shorts.

Is The Market Headed Lower?

DISCLAIMER: Please use your own research. This post is for informational use only and not a recommendation to buy/sell any securities.

Recently there has been a lot of talk about the Dollar weakening as the Federal Reserve keeps pumping money into the economy and trying to keep interest rates low but slowly meeting failure as interest rates are increasing. When the dollar starts to weaken, what do you trade or how do you protect your portfolio from inflation?

Buy Gold

One of the safest and most popular ways to trade or protect your portfolio from inflation is investing in or trading gold. The easiest way to invest or trade gold is through the SPDR Gold Trust ETF (GLD). Looking at the chart below you can see the GLD has performed well gaining 60% over the last three years when compared to the dollar at which lost 6%. If you are looking for another way to trade gold, try looking at the Market Vectors Gold Miners ETF (GDX). Gold miners significantly increase their profits when inflation picks up; as gold moves up, mining companies profit margins expand.

Treasury Inflation-Protected Securities

Treasury Inflation Protected Securities are another way to trade inflation. ETFs like iShares Treasury Inflation-Protected Securities ETF (TIP) give you a real rate of return, do not expect to make a significant amount of money here but rather reserve the value of what you have. What happens when global inflation occurs? Try looking at global ETFs like SPDR DB International Government Inflation-Protected Bond ETF (WIP) track global inflation. Looking at the chart below again you can see TIP outperformed the dollar returning 16% while the dollar lost 6%.

Buy Commodities ETFs

Commodities are a great way to trade inflation. Commodities tend to move more rapidly than the other two ways mentioned above. Commodities ETFs like PowerShares DB Commodities Index ETF (DBC) have big price swings and should be traded and watched carefully. Buying into commodities at the wrong time can devastate a portfolio but when used right they can produce huge gains. You might want to buy the individual commodities like crude oil along with a gold ETF previously mentioned.

Whatever ETF or tracks you choose to use, do your research before getting into them. Make sure you have a good case for an increase in inflation. These ETFs will not do much good to you in a deflationary period.

The markets started the day strong then slowly selling off until going negative during the last hour of trading. As oil climbed to $62, the markets rose until the collapse of financial sector. Some say we are nearing a reversal and heading back down, while others think it is the beginning of the bull market. So, how do you invest?

Short-Term Bear / Long-Term Bull

Right now, I am a short-term bear and think the market will go lower than the current level but if you are looking for a long-term trade/investment, I think stocks will be higher in 2010. Stocks are due for a pullback from the recent rally whether it is a new bull market or just a bear market rally.

Watch Oil Closely

Oil is at levels not seen in months as it passed through $62 a barrel today before pulling back. The current economy is not ready for increasing fuel cost, which could delay an economic recovery. Keep an eye on oil and gasoline futures; they might be worth investing in.

Always have stops in place with any position.

Disclaimer: I am short the market and do own shares of ProShares UltraShort S&P500 (SDS).

The stock market has been great to traders over the last seven weeks; will it last? This week has given traders many reasons to sell or get short the market from Swine Flu to some of the largest banks still needing more capital to continue operations. A few months ago, just the two events listed above would have dealt a crushing blow to the markets but we are not seeing the sell-off. So, is it time to buy?

Banks Dish Out Bad News But…

Friday, banks received the results of the stress test and after the close of the markets regulators shut down the First Bank of Idaho, which is the 29th bank to fail this year. Yesterday, information about the stress test results leaked out and apparently, Bank of America and Citi will need more capital to meet regulations. Even with the closure of another bank and more banks needing to raise capital, no real massive sell-off occurred.

Swine Flu Has Little Effect On Markets

This is probably one of the, if not the, biggest event so far this week that could have crushed markets. Although, the news of the Swine Flu affected the Mexican stock market, the US market seems to have shrugged it off. This could still have a huge impact on global markets and trade if the flu continues to spread but for now it is having little effect.

If the markets continue to shrug off bad news, it could present a great buying opportunity. Watch the S&P 500, if it gets above and maintains the 875 level, the markets could go for another leg up. At the same time, if news continues to get worse and as more information about the bank’s stress tests come out, a higher than expected unemployment number and other factors could push the market back down for a correction.