Hawaiian Trade Wins

Market Update for November 16, 2008

2008-11-17T10:48:00.001-10:00

While the Market appears to be trying to find a bottom, last week’s price action has resulted in conflicting indications from a technical perspective. During Thursday’s morning sell off, most Major Indexes saw their previous lows exceeded. This implies the down trend is still in place and suggests another leg down is possible. Later in the trading day, prices abruptly reversed resulting in a rally which took the DOW up 870 points from the day’s low.

Friday’s price action further clouded the indications when prices for the Dow Jones Industrial Average and the S&P 500 eclipsed the previous day’s high only to reverse in late day trading ending with a substantial loss at the closing bell.

Given the lack of clarity in the current Market conditions, the probable Market direction for the coming week is cannot be determined at this time.

Bob

GM and the Stock Market

2008-11-17T10:45:00.000-10:00

For the most part, I took the weekend off and didn’t finish my thoughts for last week’s Market Update. It is now Monday morning, before the “Open”, here are some additional considerations.

The Market has been faced with a never ending sea of bad news each time it attempts to stage a rally. Perhaps the most pressing issue for this week and next involve the Auto Industry. GM claims to be out of money and will have to seek bankruptcy protection before the end of the year. Under “normal” financial conditions, a corporation under the control of the bankruptcy court would secure “Debtor in Possession” (DIP) financing from private sources and continue operating while attempting to restructure into a viable entity. In today’s environment, private DIP financing is not available. This has lead GM to approach the government for assistance.

When major corporations have filed Chapter 11 in the past, the usual outcome has been as follows.

The owners of the corporation (shareholders) usually lose their investment, if and when the outstanding stock is canceled. This action allows the corporation to obtain new capital through the issuance of new stock. The logic behind this segment of the bankruptcy process is this, the shareholders, as owners, have the responsibility to insure the board of directors they have elected are managing the company responsibly. If this is not taking place, the shareholders have the right and responsibility to replace them or suffer the consequences.

The corporate bond holders are individuals and institutions which have lent money to the corporation in exchange for the promise of higher returns on their capital then they would receive from Government issued debt. For these higher returns, the bond holder agrees to accept the risk that some of their capital may be subject to loss. Under the supervision of the bankruptcy court the bond holders and the corporation will negotiate new terms for all lenders. The outcome of past negotiations of this nature has resulted in substantial loss of capital for the bond holder.

Vendors which have accounts receivable payable by the bankrupt company may see these receivables converted to “claims” in the court system. There have been previous situations where the vendors have received very little on these claims.

Employees both past and present inevitably see reductions in pay and benefits from the bankruptcy process.

The theoretical goal and purpose of Chapter 11 of the Bankruptcy Code is to allow a company to restructure its capitalization, debt and labor cost so that it is able to compete in the current economic environment. Thus preserving jobs and providing economic stability to affected communities.

GM’s immediate future has far reaching implications on the Financial Markets. This leads to the dilemma being faced on Capitol Hill this week.

If the government denies GM’s request completely, the company would be forced to seek private DIP financing which may not be available. This could force GM into Chapter 7 bankruptcy resulting in the liquidation of their assets. One outcome of this would be the loss of well over three hundred thousand jobs when supporting industries are taken into consideration. This would almost certainly cause the already fragile Financial Markets to continue their precipitous fall.

If the government provides GM with a bailout loan, business will most likely “continue as usual”. Nothing will have changed, the board of directors will remain in place, the debt and capitalization structure will remain unaltered and labor costs will remain at their current levels. In effect, GM will continue to be at a competitive disadvantage in the world market. The Financial Markets may initially view this option positively, favoring the short term fix.

A less talked about option is for the government to grant DIP financing to GM which would provide the liquidity required to navigate the Chapter 11 bankruptcy process. While this may be the best long term solution to GM’s systemic problems, the process is slow and tedious. The Financial Markets have become very impatient and may not look upon this approach favorably.

Washington’s decision on GM’s fate could quite easily start the Stock Market moving. The direction however remains in the balance.

Bob

The Divergence and Failure Swing

2008-11-11T15:04:00.003-10:00

Chart for this article can be found by clicking on "My Yahoo Group Site" under the files section.
File name Charts for Article 6.doc

As you may have surmised, I use only the price chart and the MACD when searching for potential trades. In essence I look for 2 things; a divergence combined with a failure swing.

A divergence occurs when price moves in a different direction then the MACD. In figure 1 of the attached file, notice that price of the NASDAQ Index reached a lower low at point B then it previous had at point A. This occurred while the MACD, at corresponding point 1, is higher then it was at corresponding point 2. After this divergence between the MACD and price, the Index moved sharply higher. Bear in mind that this alone would not prompt me to put on a trade.

Normally the term Failure Swing is associated with the Relative Strength Index. For this study I will use the term to define a very specific pattern associated with the MACD. A failure swing occurs when price action forms a reversal pattern while the MACD diverges AND the “fast line” (green line) remains below the “signal line” (white line). Again refer to figure 1, notice the double top which was formed at points C and D. Now look at the MACD in the lower window. Not only did the MACD diverge from price action at corresponding points 3 and 4, it also revealed a “Failure Swing”.

There is one last step I take before I put on the trade; I consult the longer time frames. The chart in figure 1 is a daily chart. Figure 2 is a weekly price chart and figure 3 is a monthly price chart. Notice in Figure 2 at the right hand edge of the chart, the MACD has started to flatten slightly. This provided further support for the trade.

The monthly price chart in figure 3 provides the primary foundation for the trade. The MACD at the far right edge of the chart is moving lower. In addition, it is also leading the price lower. In a later article I will discuss the term “leading the price lower or higher”.

We have now created the most basic framework for my trading style. From this point forward most of my articles will use price chart examples to explore the more detailed intricacies of trading.

Call or email with any questions,

Bob

PS; After reviewing the copied charts, I see that it is difficult to see the MACD flattening in figure 2. To show this more clearly I have added figure 4 which contains the MACD Osc (histogram). Here we can see that the MACD momentum is slowing. Remember from the article titled Introduction to the MACD, the histogram shows a bar graph representation of the distance between the 2 lines.

The MACD Indicator

2008-11-11T15:03:00.000-10:00

The Moving Average Convergence/Divergence Indicator or MACD has long been revered as the most accurate indicator. As a momentum indicator, the MACD tells us if the price movement is trending as well as the strength and direction of the trend. But more importantly, when use in conjunction with a price chart it has the uncanny ability to identify tops and bottoms with almost perfect accuracy. Of course one must learn to speak its subtle language.

The MACD can be used with any time frame from a 15 minute price chart to a monthly price chart. By fully understanding the MACD, a trader or investor can develop an excellent trading or investing plan. What’s more, this indicator works for all price charts I have studied, from stocks to futures to currencies. It is not necessary to know how this indicator is computed. You only need to know how to use it properly.

The MACD is normally comprised of 2 lines, the fast line and the slow line. I will refer to the slow line as the signal line. At times the indicator will include a “histogram” or bar graph representing the distance between the 2 lines. In addition, the histogram indicates which line is on top. I do not normally use the histogram and do not include it in my charting. If I cannot tell what is occurring using the 2 lines of the basic MACD, I do not trade.

The slope and relationship of these 2 lines tell us what is happening to price momentum and at times what is likely to happen in the future. Keep in mind the MACD cannot predict every price reversal but the reversals that it does forecast can be exceptionally accurate when it is taken into context with the general market. By this I mean if the Dow Jones Industrial Average, the S&P 500 and NASDAQ indexes are trending higher, a MACD “up signal” issued for an individual stock will almost always be accurate. The opposite can be said as well; in a down market a MACD “down signal” issued for a single equity is almost always correct.

Market Update for Wednesday

2008-11-05T12:20:00.001-10:00

The Market took a day or two longer to reverse then I had originally thought.

While today’s move lower may seem alarming, I do not recommend you join in the panic selling which is likely to continue into next week. The Dow Jones Industrial Average and the Major Indexes may revisit the lows created in October but this is part of a normal bottoming process. The technical indications on the daily price chart, at least for now, suggest a sizable rally could take place after the panic selling abates.

Keep in mind, the long term outlook for the World Economy and the Stock Market still look very bleak. A break to new ‘Market Lows” is always a possibility.

If you are in the paper trade from last Friday’s article, keep the trade open. The technical indicators continue to support the position.

Bob

Apple will most likely fall to its previous lows during the bottoming process. It should rally from there. The technical indications imply a price of $150 is possible.

The World Economy in a Sardine Can (A Bedtime Story)

2008-10-31T14:26:00.002-09:00

Charlie owns two things, a plot of land on the hillside and a can of sardines. Having an entrepreneurial spirit, he decides to use his two assets to generate wealth. He takes his can of sardines to Johnny and says “I have discovered diamonds on my land. I put some of them in this can. If you lend me some money I can buy equipment to mine more diamonds. I will leave this can of diamonds with you as collateral. I know it looks like a can of sardines but it really is diamonds.” Johnny had known Charlie all his life and had no reason not to believe him. So he lent him the money and kept the can of diamonds as collateral.

Charlie took the borrowed money and used it to build a successful business in Long Beach. Meanwhile Johnny took the can of diamonds to Jim and said “I got this can of diamonds from Charlie our trusted friend. He has a diamond mine on the side of the hill. If you lend me some money, I will give you these diamonds as collateral”. Jim had known both Charlie and Johnny all his life and had no reason to distrust either of them. So he lent the money to Johnny and took the diamonds as collateral.

Johnny took his borrowed money and started a successful business in Colorado. Now Jim took his can of diamonds to Steve, well you know what happen next… Jim end up with a successful business in San Francisco and Steve opened a profitable bank in Houston.

Everybody was happily making money, life was good.

The question for the World Economy is this, did someone open the can of sardines or is everyone standing around wondering what is actually in the can. If the can has been opened, we’ll need to find a new can before the economy can stage a long term recovery. If we are still just “wondering” maybe the stimulus packages of the world will restore the confidence.

Either way will know within the next 18 to 24 months.

Bob

The Week of November 3

2008-10-31T12:22:00.001-09:00

October 31, 2008

This week’s price action has strengthened the technical indicators on the daily chart. It appears, at least for now; the financial markets are anticipating some positive effects from the World Government’s stimulus packages. A Market pull back from the current level may present an entry for a longer term paper trade.

The short term technical indicators now favor a market pull back within the first few trading days of next week. For the shorter time frame I like ProShares UltraShort QQQ (symbol QID) and ProShares UltraShort Russell 2000 (symbol TWM).

Option traders should place an order to “Buy puts to open” November 32 QQQQ (symbol QAVWF) at the market.

Remember, this is for paper trading only.

If you are paper trading UWM or QID based on last weeks recommendation, place an order to close the position at Monday’s opening price (market order). UWM opened last Monday at $19.23, it closed today at $25.80 for a 34% gain for the week. Monday’s opening price for QID was $27.74; today’s closing price was $34.74 resulting in a gain of 25%.

Apple Computer continues to build technical strength on the daily chart. Next week may result in some downside volatility but this will most likely serve to strengthen its longer term potential.

Bob

Curriencies

2008-10-30T11:25:00.001-09:00

October 30, 2008

GBPUSD – Is moving lower on the daily, weekly and monthly offering a triple foundation!!! Currently it is counter cycling to that trend on the 8 hour chart. The first counter cycle lasted 12 trading days, from September 10 at 2200 to September 24 at 1400. The second ran for 81/2 trading days from October 9 at 0600 to October 19 at 2200. To date the current counter cycle has been in effect from October 23 at 2200, about 5 trading days.

The previous 2 reversals were signaled by a tic lower on the 8 hour fast line with the entry being signaled on the 4 hour chart in a failure swing.

EURUSD – A similar situation to the GBP above, watch this in tandem with it.

USDCHF – Watch this pair in conjunction with the GBP and EUR.

USDJPY - Is cycling lower on the daily chart with the weekly and monthly supporting the move lower. Currently, it is counter cycling to that trend. This counter cycle is stronger in magnitude then previous counter cycles. The previous 2 counter cycle reversals are difficult to pin point other than the traditional “The Yen Likes to Trend” rule. The 4 hour chart has already started to flatten, if price action starts to trend lower, look for an entry.

Bob

Fundamentals

2008-10-27T18:06:00.000-09:00

The term fundamental can be defined by the word “basic”. When we speak of economic fundamentals, we are referring to the basic ability of a government, private entity or individual to perform financially. I will leave the discussion of “government fundamentals” for a separate article given its complexities.

Firs,t let’s look at the fundamental or basic concept of performance. More simple put financial performance can be defined as the creation of wealth. Wealth in general, only comes from 2 sources, the first and by far the most important concept of wealth creation can be summed up in the following statement: All wealth is created from the efforts of individuals. This is to mean that each of us, through our efforts, can add value to the natural resources which are available to us. Hence, through our combined labor we can create an automobile from iron and hydrocarbons (plastics) or build Hover Dam from concrete and steel. Second, natural resources must be readily available for individuals to exploit. Notwithstanding any societal philosophies which impact the work ethic.

Entities such as companies and corporations are simply vehicles which have been created to foster the ability for individuals to create wealth. In modern economics, these entities are forced to operate in accordance with current nation laws. If these “national laws “are not congruent across borders, entities operating in certain nations will gain an advantage. A case in point can be seen throughout Asia. China’s laws do not require their economic entities to adhere to the strict social and environmental laws of Western Societies. This of course gives them an edge over Western entities. As a result, all “developed” nations have see production (the creation of wealth) move to these less restrictive environments.

This phenomenon is referred to as “economic globalization”. Its roots date back to the end of WWII but the rate of growth has increased significantly over the past two decades. The results, at least so far, have been an increase in the world’s standard of living with the lion’s share going to the United States. This again is related to WWII. During the war, the US Government bought several hundred million dollars worth of war materials from US companies. This fueled the development of our “Nation’s Industrial Complex” which after the war, was used to generate the greatest concentration of wealth in the history of man. More importantly it was amassed in the United States. This was the only possible outcome given that the rest of world’s infrastructure had been destroyed in the war from Europe to Asia to Russia.

At the close of the war, the US provided materials, capital and personnel to rebuild Japan and Europe. This was not only the birth of today’s “developed” nations but the birth of economic globalization as well. You may recall the United States was fairly well entrenched in isolationism before it got involved in WWII.

From the end of the war until the 90s (some might argue the 80s) the US continued to create and accumulate wealth. At some point in the 80s or 90s a sufficient percentage of production had moved offshore to reverse this process. Since then the US has been consuming more wealth then it has simultaneously created. This has been made possible by the producing (developing) nations willingness to finance our excess consumption. They have been willing to do this primarily for two reasons. First, it transfers wealth from the US to these nations and second they trust that the US government will maintain its ability to tax sufficient wealth from its populous to repay any debt it incurs.

While personal deficit spending can continue for an unknown period of time, at some point the wealth will be gone and the consumers will have to return to the reality of “make a dollar, spend a dollar”. This said, the credit freeze will continue to make its way to the consumer as mortgages and auto loans become more difficult to qualify for. I believe that eventually credit cards will be affected as well as lenders become more selective in who they are willing to do business with.

If the above scenario becomes a reality, the current recession may prove to be quite long.

The current financial crisis may actually be creating a silver lining. It has prompted the world governments to take unprecedented action in an effort to free up the credit markets. If these endeavors prove highly successful the recession may turn out to be shorter than predicted.

Either way the stock market will be the leading indicator. As I pointed out in today’s market assessment, the long term technical indicators are still very weak. The Market has been falling for 12 months; a rapid reversal from the current lows is unlikely. What’s more fast reversals have historically been short lived and have usually been followed by further weakness.

October 15, 2008

2008-10-15T20:34:00.002-09:00

At least for now the technical indicators for all Major Indexes continue to show weakness. However, given the huge amount of money the World Governments are pouring into the economies, one would expect the Stock Market to stage a relief rally at some point.

The long term outlook, at least for now, still remains very bleak. This of course can change, however this will take some time. A Market fall of the magnitude we have recently experienced does not normally reverse quickly.

I have grave concerns regarding the long term Fundamental outlook for the United States. Previous government stimulus packages have promoted and encouraged the creation of wealth. In the 30s the WPA program used public funds to create a strong public infrastructure which was and still is used in creation of wealth. In the 80s, Government policies provided an economic environment which encouraged industry to invest in private infrastructure; this too was used to create wealth.

More recently, the Government has encouraged, and the population has responded, in the unsustainable behavior of spending more wealth then it creates. Obviously this act of personal deficient spending cannot continue forever. While no one can accurately determine when the “House of Card” will fall, the Stock Market seems to be very uncomfortable with the current situation. An important thing to remember here is that the Stock Market is seldom wrong.

On the surface, it appears that the current bailout stimulus packages only encourages more spending of wealth and includes no provisions for creation of wealth. In my view this is the very concept and practice that has gotten us into this mess in the first place.

While a rally in the Stock Market seems likely, the magnitude and duration may prove to be rather anemic and short lived. Personally, I fear we are going to experience a recession that could be quite sever and prolonged.

Cash will continue to be” King” in this environment. I recommend looking for opportunities to raise your cash levels.

Bob

PS: My editor (and wife) says my writing is too esoteric. This is because I hesitate to express the gravity of my concern for everyone’s financial well being. In a nut shell I believe the Market could fall so fast it will make your head spin. When the Government starts making statements implying a recession is likely, you had better seriously consider the classic line “Hang on to your butts”. Now I am not saying the "Sky is Falling" tomorrow but we cannot continue to spend more than earn forever. Sooner or later we will have to “Pay the Piper”. Wall Street is implying the “Bill” is on the table.

The Wall Street and the Government Bailout

2008-10-02T16:50:00.003-09:00

As of the close of today’s trading, price action and technical indications for all the major indexes show no evidence that a stock market reversal or sustainable rally are emanate. This is very concerning given we are the eve of Congressional passage of the largest financial bailout package in the history of the United States. This implies two things, Wall Street does not believe the measure will pass and/or it does not trust that the proposed legislation will be immediately effective.

If the bailout measure does not pass, one could expect the stock market to react as it did last Monday when it lost 777 points. This however seems unlikely if the media reports can be trusted. Should the bill pass, given its size, it is difficult to imagine that it will not have some positive effect on the financial markets. Already the nation’s three largest banks JPM, BAC and C have gained between75 and 100 percent in the past 2 ½ months. These companies will most likely continue to benefit from the current banking climate.

Should this Federal rescue effort prove effective in “unlocking” the financial markets and thereby relieving the credit crisis, Americans will undoubtedly go back to doing what we do best, borrow and spend. Hence, some of the retailers are starting to show some technical strengthening. While it is still too early to enter a position, JCP and KSS could present a buying opportunity soon.

The saying “Friends don’t let friends buy and hold” is a term that was coined after the NASDAQ gave up more than 78% of its market capitalization when it fell from its all time high reached in March of 2000. The current Market’s weak technical indications along with the economy’s long term fundamental issues make the above statement truer than ever before. Now is not the time to buy and hold securities for the long term. If however, you are willing to assume the risks associated with this tenuous stock market and would like to benefit from the potential effects of the FED’s mass infusion of capital, look for mutual funds that invest in strong financial institutions. The technical indicators for PowerShares Dynamic Banking (symbol PJB), at least for now, are showing considerable strength. Given the current market volatility, I would only enter positions during extreme market weakness.

Bob

A Major Market Bottom or a Dead Cat Bounce

2008-09-22T11:52:00.001-09:00

A Major Market Bottom or a Dead Cat Bounce

The stock market’s price action of the last two days has been astounding to say the lease. On Thursday the DOW rallied 410 points after the FED announced that it would “lend” AIG (the nation’s largest insurer) $85 billion in exchange for a 79.9% stake and government oversight. In addition the FED and most major Central Banks of the world, in aggregate, have pumped hundreds of billions of dollars into their respective economies.

Today (Friday) the FED banned “short selling”, (for a definition of short selling go to http://en.wikipedia.org/wiki/Short_selling) of certain financial stocks, the number of restricted equities exceeded 700. This FED action required brokers to cancel thousands of sell orders without the permission or knowledge of the account holders. The result was an imbalance in orders when the market opened Friday morning. In other words there were far more buy orders then sell orders on the trading floor at Friday’s opening bell. The buying frenzy, albeit artificially created, was exaggerated when short traders were force to enter more buy orders to cover their existing short positions as the market rallied. The FED’s action over the past two trading days arrested what could have turned into a true” market meltdown” and cause a combined 700+ point rally on Thursday and Friday.

Treasury Secretary Paulson, aka the Bush administration, has proposed a $700 Billion bailout package which would be used to buy bad mortgage investments from financial institutions. Combine this with the AIG, Fannie Mae, Freddie Mac and LEH bailouts and the number approaches $1 Trillion or $3300 for every man, women and child in the United States.

The key phrase in the above paragraph is “the Bush administration”. The Democratic controlled Congress will most likely attempt to use this event to their advantage in their bid for the White House. What effect will this action have on an already skittish Wall Street?

While the technical indicators and price action continue show weakness, one cannot rule out another Government intervention. If the “Plan” turns into a political football, which I believe will happen; the market could continue its move lower. If however the FED interprets a continued market selloff as a large enough threat, they may continue to take “unprecedented action” to stop its fall.

The bottom line is quite simple this. Free market theory is no longer in control of the US financial markets. Its price action is now at the whims of the Bush administration and therefore anything can happen. The Administration has demonstrated that it will do whatever they feel is necessary to prevent a “meltdown” of the financial markets. The question remains whether the action taken will be effective.

I personally am taking no action until clarity returns to the market.

Bob

Is the Market Melting Down?

2008-09-17T11:34:00.001-09:00

After Monday’s 500+ drop in the DOW the news referred to the move as “Meltdown” of the stock market. While a 500 point drop is concerning it is by no means a meltdown. To date the market has fallen 3300 points since it made a record high almost 1 year ago. Let’s take a look at a real melt down and compare it to Monday’s price action.

On October 19, 1987 the DOW fell 508 points from the previous day’s close. This was after it had already fallen 500 points from the record high created on August 25, 1987. Add that to the drop of October 20, 1987, the DOW gave up 1,131 points in just over a month.

Looking at the raw numbers is would appear that our current Bear Market is indeed more sever then the crash of 87. However, if we put these numbers into context we will see a more accurate picture.

Monday’s drop of 504 point came after the previous day’s closing price of 11,421.99 resulting in a drop of 4.4%. Today as of 9:45 the DOW had reach a low of 10,660.31 having given up 3,620 points or 25.35% in just under 11 months.

On August 25, 1987 the Dow Jones Industrial Average reached a high of 2,746.65, a new record. On October 20, 1987 the DOW reach a low of 1616.21 having given up more than 41% of its market value in less than 60 days. The 508 point drop which occurred the previous day accounted for a 22.6% drop in 1 day.

Recall from my article almost 1 year ago, I pointed out that the Bernanke would attempt to prevent the market from “melting down” and instead would do what he and the FED could to have a more orderly market correction. So far he has been successful.

So what is the point of this long dissertation? Well, as Curley said in the movie City Slicker when ask “Hey Curley, have you killed anyone today”. Curley responded “The day ain't over yet” And either is this Bear Market.

Price action for all the major indexes continues to break critical support levels on the weekly, daily and intraday time frames. In addition the technicals continue to show considerable weakness.

While the market has not melted down by 1987 standards, in the last 15 minutes of today’s trading, the DOW broke intraday support and closed at 10,609.66 having given up 449 points for the day. The market may not be “melting down” but things are heating up.

At least for now “Cash is King”. The dollar has reversed and is gaining strength against the major world currencies (although a correction is overdue). This strengthening, should it continue, will ultimately lead to lower inflation.

Bob

Up or Down? September 8, 2008

2008-09-08T20:11:00.001-09:00

One can never be sure which direction the market will go AND as a trader we should never make predictions. What we can do is observe what the market is doing and manage our account accordingly.

Since I only take swing and positions trades, I start my observation with the long term chart. I also know that price action is by far the most important factor in technical analysis. Therefore I first look at the monthly price chart for the DOW, COMP, SPX and OEX. Here we can clearly see the trend is down on all 4 indexes. If we now look at the MACD we see that monthly momentum is also down.

The weekly charts for all but the COMP show price is moving lower in bear waves. The
MACD for the DOW is also moving lower in bear waves. The MACD for the SPX and OEX both show a divergence between price action and indicator movement off the last low. For all indexes the MACD has been flat for the past few weeks.

Since early August daily price action has resulted in continued breaks in short term pivotal support levels. Even after today’s move the short term trend remains down. Momentum, as shown by the MACD, clearly remains down with the strongest downward momentum evident on the COMP. Here we must note that the COMP usually leads the DOW. This is because the COMP is a far broader index then the other three and being heavily weighted with tech stocks it tend to be far more volatile.

The market turn around, which began Friday, occurred after pivotal support was broken on all 4 indexes. What’s more, the reversal has taken the form of a V. Normally a V reversal after a break in support is indicative of a return move and not a major market reversal.

Based on the above observations, this is how I will manage my account. I will watch the indexes over the next few days paying close attention to the hourly chart. If I see a topping formation there accompanied by a diverging MACD, I will look for stocks that are good put candidates.

Good Luck,

Bob

Friday’s Market Action

2008-09-07T07:52:00.001-09:00

Friday’s recovery in Dow was not unexpected. After the big drop the previous day it is not surprising that investors did some bargain hunting. Over all the technicals remain weak on all three time frames, monthly, weekly and daily. This implies that previous lows could be tested. However, given the strength of Friday’s turn around, a rally during the early part of next week cannot be ruled out. If a counter cycle rally does occur and the technicals remain weak, an opportunity to buy put options may present itself.

Bob

Where Does It Go From Here

2008-09-04T21:39:00.002-09:00

The Major Indexes continue to break short term pivotal support levels while the Technicals continue to weaken. This implies that the Market may continue down and test major support levels.

Non Farm Payroll (NFP) numbers will be released tomorrow (Friday) before the Market opens. In the past an unexpected NFP report has moved the markets. However, the long term trend remains down. This trend is currently being supported by the mid term and short term Technicals.

Remember, `a trend is considered to remain in place until price action indicates otherwise'.

Bob

Where Does the Market Go From Here

2008-09-03T05:26:00.000-09:00

The Market will most likely turn lower from here. The technicals are very weak and support has been broken for most of the major indexes. The strongest supporting evidence for this move lower however are the volatility indexes for the Dow 30 and the NASDAQ 100. Normally volatility move in the opposite direction of the underlying index, both of these are moving higher on the daily charts.

Mr. Pipman

Today Market Action September 2, 2008

2008-09-02T14:02:00.001-09:00

Today Market Action September 2, 2008

We had a wild ride today as investors staged a relief rally when news that hurricane Gustav spared the Gulf Energy Infrastructure and New Orleans. However the rally was short lived. This was foretold by the technicals when, last Friday, the NDX (NASDQ 100) broke pivotal support (see my previous post). Based on today’s price action it seems likely the market will turn lower within the next few days.

If you entered your order for Abbott Lab puts, they should have filled at $1.10. Abbott is giving you another opportunity to enter the position. If you missed the entry today, place the order I outlined in yesterdays article before tomorrow’s open.

Good Luck,

Bob

Abbot Labs (ABT)

2008-09-01T08:55:00.000-09:00

Charts for this article are available for download in MS Word format at the following link (file name “ABT Charts”): http://finance.groups.yahoo.com/group/HawaiianTradeWins/files/.
Refer to the monthly chart, figure 4. Here we see a possible head and shoulders pattern. Notice the MACD has moved lower in bear waves as price action was forming the three tops. More importantly, during the most recent rally, the fast line (green line) has remained below the signal line (white line).

In figure 5 we can again see the bear waves on the MACD. However, the fast line is still moving higher, this tells us that momentum for this stock remains up. Before entering this trade, I will need to see two things take place: first the general market will have to reverse and second, I will need to see some evidence that the upward momentum for Abbot Labs stock has reversed.

Let’s look at the general market, refer to figures 1 through 3. The monthly chart’s MACD, figure 1, shows a down trend is in place. The weekly chart, figure 2, shows a counter cycle to the down trend is currently in control of the market, (a counter cycle is a short term up trend moving against the major down trend). What’s more, the green line on the weekly MACD is still moving higher. Thus at least for now the counter cycle is still in place. The daily chart in figure 3 shows the momentum is beginning to slow. This is evident in the MACD fast line arching over. What I am looking for is an indication that the counter cycle has ended. For this I want to see a topping formation on the daily chart, complete with a MACD divergence. Absent of this, I would be comfortable entering the trade when the weekly MACD arcs lower, assuming the following takes place for Abbot Labs as well.

For Abbot Labs I am looking for the same thing, a diverging top on the daily chart or the weekly MACD arcing lower. In addition, the monthly MACD fast line MUST remain below the signal line.

Mr. Pipman

Boeing

2008-08-23T13:42:00.002-09:00

Up to this point we have only looked at longer term trades. Today we have a short term setup in Boeing (BA). The current market condition is an upward counter cycle against the longer term down trend. The counter cycle has turned the weekly MACD up. For the previous 2 days (Monday and Tuesday) the market has fallen. Remember, the trend is in place until it proves it self other wise this includes counter cycle trends. This means we could get a short term rally in the market in the next week or so.

Boeing is the perfect candidate for a short term trade. The daily chart, figure 1, shows an inverted head and shoulders pattern with a MACD failure swing at the current price (right shoulder). The weekly chart, figure 2, MACD has started to flatten indicating the downward momentum has slowed. Figure 3 is an hourly chart. Notice it has turned up. This is our “entry signal” to “buy calls to open”. We can expect the trade to remain open for up to one month, the time from shoulder to shoulder. I believe it will be less then that however.

The highlighted line of figure 4 shows the price for Boeing (BA) September 65 call (symbol BAIM) ask price to be $1.50 per share. An options contract represents 100 shares so the contract price is $150 plus commission which is about $10. We will assume we opened this position today for a total of $160. This contract gives us the right but not the obligation or the “option” to purchase 100 shares of Boeing at $65 per share. This contract expires the third Saturday of September, 31 days from today.

Follow this link for charts, your will find them under the files section of this yahoo group, the file name is “Charts for article 10”. http://finance.groups.yahoo.com/group/HawaiianTradeWins/

Bob

Abbot Labs

2008-08-23T13:36:00.000-09:00

I am watching Abbot Labs for a possible trade.

Abbot Labs, refer to the monthly chart, figure 4 in file “ABT” at my group http://finance.groups.yahoo.com/group/Hawaiian_Trade_Wins/settings?mode=1 . Here we see a possible head and shoulders pattern. Notice the MACD has moved lower in bear waves as price action was forming the three tops. More importantly, during the most recent rally, the fast line (green line) has remained below the signal line (white line).

In figure 5 we can again see the bear waves on the MACD. However, the fast line is still moving higher, this tells us that momentum for this stock remains up. Before entering this trade, I will need to see two things take place: first the general market will have to reverse and second, I will need to see some evidence that the upward momentum for Abbot Labs stock has reversed.

Bob