Major change...

Looking at the P&F of our new indicator, the QQQQ Ultra Short, you'll see that today we broke below our newly established upward trend (downward for the QQQQ). I was bounced out of some short positions, but because I saw severe volitility in the VIX, I hedged with some long positions, which did well today (EBAY, SGMS).

So there is one problem with this reversal, we're using a double-short indicator, and as such, it is more volitile than the general market. Look at the S&P 500 on the left. There is still some overhead before this is a true breakout. Read this short blurb in the WSJ Market Beat. A well stated case that the market may very well be misreading the Fed statement, and that tomorrow may be the real test of the statement.

I fear a whipsaw. I'll be watching the market closely tomorrow. Expect a gap at the open one way or the other, then probably a strong reaction the other way by the end of the day. I'll be closing some long positions if we open significantly higher. I'd advise a short-term, hedged bet. Traditional short-term buy-low-sell-high + short-high-buy-low.

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Confirmation!

So, as predicted, there was more downside today. The S&P dipped over 2% on high (but not stunning) volume. Though it hasn't pushed below it's lows of last week, it is not safe... It has breached its recently established channel, and has reentered its old one, which has a current base at about 1285-1290 or so. That is a lot of possible downside. OTOH, its new channel is, well, new, and has barely been breached, so it may still be finding its baseline.

Though investor sentiment has become more bearish over the past ten days or so, it is still in the bullish camp. This suggests that there some possibility of downside, but the fact that investors aren't assuming this to be a massive buying opportunity means that it might actually be just that. On the other hand... Look at this P&F chart of the VIX. WTF?!?!

Volitility is through the roof. It's not just high, it seems to be estabishing a new, huge, major trend in high volitility. What this means, folks, is that we ought to baton down the hatches because the whipsaws aren't done. If I were me, I'd be looking at a high-risk hedging strategy, with a short-term horizon. Buy big dips, like today, sell big swells (as we'll likely have over the next few days).

Stocks to scan:

buy: SGMS, KELYA, EBAY, CMGI
short: ASPV, CME (short at apx 590), NCS

indicator test...

If our QID indicator is accurate, we have reached a level of downside resistance:


If correct, we ought to see a move upwards on the QID, and downwards on the Nasdaq 100 in short order, probably tomorrow, Monday or Tuesday. A move significantly below this point on the QID may indicate a trend change upwards for the Nasdaq 100. This should be a short term indicator.

New indicators

Over the past few months, I've been wondering if we might be able to use the new Ultra Short shares as trend indicators for the broader market. For those new to Ultra Shorts, the idea is that you get double the inverse movement of the index it tracks. Consider the Nasdaq 100. The Ultra Short gives 2x the QQQ's inverse. In other words, if the QQQ dips 1 point, the Ultra Short, symbol QID, should give you 2 points up.

I'm wondering if we could use this as a swing indicator of the QQQ itself. The problems are of course that the QID is double weighted, and that liquidity on the QID is ahort of total efficiency (I imgaine). On the other hand, the double weight might emphasize moves, making them more apparent. For instance, on the QQQ (left. Click for bigger view), there is no apparent pattern on the weekly chart, other than a possible breakdown of a shortterm trend.


Looking at the QID, it seems apparent that there is a breakout from a basing pattern, even perhaps a sloppy inverse Head and Shoulders, though the liqidity here plays a factor, since the rising and inconsistent volume brings the pattern into question, simply by by fault of the immaturity of the security itself.


I suppose one could even ask why that would be necessary, considering we have Point and Figure charts to give us a view of trend changes. True, and, looking at the Point and Figure charts for these two securities we see that they spotted the change in trend on the same day, Feb. 27th.

By using these indicators in tandem, we could spot shorter term indicators with the double inverse, and longer term trends with the QQQ P&F. Together, these indicators could help us buy and sell the QID for both short term and long term gains that would double the return (and loss) from the NDX 100.

It's really only 4 percent!

So, yes, I was pshyched to see a 400+ point drop, as I was overweight on short positions (or long puts). I sold my GOOG puts two days before and took a bath on them... They were to expire in three weeks, and I didn't want to go into the weekend with them. Oh well.

So today, the market did very little: +.56% on the S&P 500. Good stable day for bulls, but what they'd like to see is a definite sign of buying into weakness, which we didn't really see today. Volume was heavy, but lower than yesterday.

In the end, the market hasn't decided yet. Look at what Mish had to show, chart-wise. That is a seriously unbalanced market. Look at his VIX chart. That kind of volitility can't be sustained, but the fact that the market was so biased towards the sellers, means that there is still a downward possibility to this market. Adding to that possibility is that market insiders are saying "hey, it's only 4 percent. Not even on the big day list" means that there is still a good deal of complacency, despite the VIX.

My guess: we should know by Friday, or Monday at the latest, which way this market is going to go. If it goes south, short CAL (suggested by Trader Tim), which has just completed a head and shoulders pattern:

If it goes North, I like HQL which took a light beating and gives a good buying opportunity:


That's it for today. Interesting times!

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DNA

One more note... DNA has closed its breakout gap. Low-risk entry point right here. Sell if it closes below 85. If you're into options, June calls, contigent stop at 84.50.

Unfortunately, I'm back...

Hey ya'll, I'm back from my blog vacation.

So I'm bullish on PHO (an Al referred stock) and HOLX. I also like RATE. Each has a strong breakout in place.

Google looks like it's at a negative inflection point. If it can break 452, it looks likely to close its gap up, and base at 440. If it breaks 440, it'll probably return to its triangle breakout point, around 425. Keeps your eyes on it. Many of the talking heads are calling GOOG cheap at 35x earnings. Perhaps, but the space is getting more congested and competitive, and the ad based model is notoriously volitile. If corporate growth lags this year, GOOG will be extremely vulnerable to cuts in large corp ad spending.

new high!

So the Dow pierced it's 2000 all time high. Okay. Gotta say I'm not impressed. First, it took six years for a new high, and secondly, the fundamentals don't justify it.

The P/E is historically well above average, bonds are inverted, housing is slowing (though slightly less than expected this month), etc. The best news for the economy is that oil prices are coming down, and are likely to continue downwards. The porblem is that this market has risen on the back of oil, gold, copper and silver. With deflation in those prices, Wal-Mart rises on lower goods and transport prices, but with diposable income being capped by the slowing housing market (and resulting equity loan limitation), consumers won't be able to fully participate in the lower prices, and a sink-hole may be created in consumer oriented stocks.

I will ride the market upwards so long as it heads up, but I don't buy it. I'm in SUMT and FISV on the long side, but I'm hedging with long puts on OIH, ESRX, BNI. The market is rotating, and I'm not confident in the direction to which it is rotating. The market is creating cavitation in this upwards move.

Play it, but hedge!

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