Bottom? or Bounce?

On July 16 the VIX pierced the 30 level before backing off and closing the day with a long shadowed "doji" - indicating a fear spike during the day followed by some complacency and ultimately indecision by the time the closing bell sounded. Previous spikes above 30 have been the harbingers of significant downtrend reversals and are usually followed by an even more extreme "fear spike" that takes the VIX well into the 30s - thats exactly what happened on the 17th. The VIX move on the 16th and the big volume associated with it convinced me to clear my bearish positions. On the 17th the VIX and broad market price action validated my position change and started moving my hedges (bullish positions) in the proper direction as well.

About my hedges - as the broad market was dropping I made the (well founded) assumption that the market wouldn't fall forever (duh!) and that as we went to lower and lower price ranges my confidence was going to erode. So, as the down move was underway I hedged with some various trades (see My Current Positions). Now granted, I came to the party a bit early so my hedges are well under water at this point - but I have been sleeping like a baby for the past month! Yesterday's big move in the market has put much of my hedge close to break even and is showing potential for some profit in the near term (love the puts I bought on the SKF!!).

Now the big question - bounce or bottom? I think it is too early to call a bottom, but I am convinced that we have the making of a decent bounce underway. Today (the 17th) should confirm or deny my outlook - but since we have option expiration this week (and earnings!) I will try to stay nimble until we print some candles early next week. For now, you can see that I have a bullish bias in my positions - but since they were hedges against my extreme bearish sentiment over the past month I will be happy to bail out of them at break even or small losses. Any profits I pickup from the upside is just icing on an already very tasty cake.

Talk to me VIX

Having survived the dogfight of expiration Friday somewhat intact, I find myself leaving the scene in a kind of bleary-eyed, preoccupied stupor - heading away at Mach 1, yet knowing in the back of my mind that I should re-engage. I reach deep into my soul and call out desperately for my long lost flying partner for help..."Talk to me VIX". In an instant I'm pulled back into the fray - re-energized, refreshed, and ready for battle. My old flying partner has revealed some much needed insight. I have managed to keep enough powder dry to finish what was started - victory will be mine. Now if I can just find that darn aircraft carrier...

The VIX is speaking volumes about the current market conditions - coupled with the DOW and SPX banging their heads on some very formidable overhead resistance, it seems like the end of the bear rally might be upon us. The VIX is showing the same level of complacency we saw back in October just as the market hit its highs and rolled over big time. The SPX has shown some strength in climbing back from the lows of 1275 but it has not been an easy climb. When it broke through 1385, the talking heads were quick to proclaim the bottom had been put in and we were turning to the upside, but follow through has been weak on mediocre volume. The cash is still on the sidelines. The DOW is no different - also banging up against the 200 MA and showing even greater weakness than the SPX. The DOW just can't seem to break through 13,000.

So...what am I doing? I'm mostly in cash but have some speculative PUTs on DIA and am long SDS. Up until today I was holding onto GLD for a hedge but decided to take my profits due to the weakening of the metal commodities. Also long some DUG - a small speculative position that is looking for a decline in Oil prices. I'm excited about the market opportunities that are in front of me. I'm looking for the VIX to start to move up and confirm a rollover in the broad market. Just gotta keep a clear head and listen to my gut.

"Requesting permission to buzz the tower".

The AAPL of my eye

Coming off the recent GOOG debacle in conjunction with yesterday's selling pressure on AAPL I couldn`t help but take a long position before yesterday's close - so I got in at 160.80. My thinking was that everyone will be looking at AAPL today but thinking GOOG and that will give me a nice pop in the morning, but I should be thinking to close out at 10-10:15 - before sanity breaks out. Granted a more gutsy move would have been to stay in it till late in the day (but I have a rule about knowing my exit before I enter), but I closed out a little after 10 at 164.40. Good trade - I'm happy. Now...I'm absorbing the AAPL earnings and guidance and am thinking about that lovely gap down below that was created a couple of days ago. Its 3 points from the 50% fibo at 159.20 to the bottom of the gap at 156. We've got some market movers reporting before the bell - I like my chances of filling that gap and will be looking for a short entry first thing in the morning.

SPY - take 2

The SPY didn't confirm the breakout above the inverted H & S neckline so I left it alone, however, the weakness got me thinking about the SDS (Ultrashort S & P 500 ETF) and SKF (Ultrashort Financials). Neither made very big moves, but they were fairly predictable and provided some nice day trade profits. Tomorrow is another day for the SPY - with AAPL reporting after the close you may have to wait another day for the big SPY bull move but I can be patient. Just keep watching that neckline for a strong break above. The bottoming tails on the last 2 daily candles tells a story of bulls that are chomping at the bit. Lastly, take a look at the AD study on the following chart - the institutions are accumulating.

SPY - what's the story?

I'm looking long and hard at the SPY after it closed today and I'm of the opinion that we are seeing an inverted head and shoulders pattern confirming with a neckline at about 138.50. MACD, STO and RSI show bullish strength - and the OBV is started to climb out of the doldrums. Combined with the general herd mentality that *wants* to take the market higher, I think we have the potential for a pretty significant upside move. We have some formidable overhead resistance - the 78.6 (140.26) & 61.8 (143.61) fibos, a downtrend line, and a 200 MA - so things could go either way, but we are at a short term pivot point (138.55). As of this writing, the futures are down a bit, indicating that we might test the bull's resolve in the morning. Today's light volume only validates the basic indecision of the market but tomorrow's earnings announcements should remedy that (AT&T, Coach, Dupont, McDonalds, etc). If the open is strong and holds until 10:00, I'm buying.

Watchlist weekly wrapup - Mar 28

28-Mar-08
Symbol	Comments (based on 3 Month daily chart)
AAPL	filled gap on daily, encountering overhead resistance at 145
ABX	massive unimpeded selloff as institutions abandon precious metals, encountering overhead resistance at 45
ACH	found support at 35 with renewed institutional interest but on light accumulation volume
AIG	downtrend continues with overhead resistance of the 30MA
AMX	moving sideways with support of 30MA
AMZN	moved up thru 30MA to resistance at 75, pulled back to 30MA
AVB	strong m,ove up thru 30MA making a higher high, pulled back to 30MA
AZO	sideways around 30MA, made a lower high
BEN	moved up thru 30MA to resistance at 105, pulled back to 30MA
BG	big downward move with rest of market and restatemet of Sales, finding support at 90
BIDU	selloff made lower low, moved back up to 30MA
BNI	making higher highs in spite of overall market, pullbaclk to 30MA underway
CAT	making higher highs in spite of overall market
CB	selloff fpund support at 49, consolidation underway below 30MA
CF	lower low, below 30MA
COH	strong move up off of base thru 30MA to overhead resistance of 33, pulled back thru 30MA to support at 29
CROX	downtrend
DE	lost the 30MA on strong volume, support at 80 and overhead resistance at 30MA
DRYS	downtrend seemed to find support at 55, move back up to 30MA stalled
FCX	moved lower thru 30MA to support of 85 with general commodity selloff, bounced back to 30MA making a lower high
FSLR	moving up on renewed institutional interest, encountereing overhead resistance at 230
GLD	hit 100 and then sold off thru 30MA, made a lower high, looking for support
GOOG	downtrend moved up to overhead resistance of 30MA
GRMN	bottoming out at 55 with some institutional accumulation getting started, encountering overhead resistance of 30MA
HOV	moved up thru 30MA to overhead resistance of 13, pulled bacl to 30MA, institutional accum continues
HPQ	sideways movement cut thru 30MA
IBM	established higher high then pulled back to 30MA
JASO	quick move up thru 30MA with renewed institutional interest
LEH	downtrend pausing at support of 37
LVS	downtrend
MA	punched thru 30MA and overhead res of 210, bullish technicals, higher highs
MCD	basing just above a sideways moving 30MA
MMM	basing just below a sideways moving 30MA
MON	strong move up pushed thru 30MA, basing just above a sideways 30MA on light volume, EARNINGS!
MTD	downtrend
NIHD	downtrend
NOK	downtrend
NRG	reversal moved down tru 30MA to support at 37.50
NVDA	downtrend found a bottom at 17.50, encountering overhead resistance of 30MA
PCAR	higher high with pullback to 30MA
POT	enountering overhead res at 165
RIMM	bounced of of 30MA to make a higher high, EARNINGS!
SKX	lost 30MA, at support at 19, lower high
SNDK	downtrend
TSO	downtrend
VIP	downtrend
VSEA	downtrend
WCG	basing
WFR	big move down cracked 30MA, big volume selling
XOM	consolidating around 30MA
DBA	big sell off
DIA	moved up thru 30MA
EFA	moved up thru 30MA
EWH	overhead resistance at 30MA
EWJ	moved up thru 30MA
EWT	big move up on strong volume then sellof to 30MA on volume strength
EWZ	downtrend pushed thru 30MA
IWM	pushed up thru 30MA on light volume, lower low, at support of 30MA
IYR	rapid move up thru 30MA to overhead res at 68, puooing back to 30MA
OIH	consolidating at 30MA
QQQQ	broke thru 30MA, pull back to 30MA
SMH	sideways, congestion at 30MA
SPY	lower lows
USO	sustained upward movement with pullback and bounce off of 30MA
XHB	triple top with pullback to 30MA
XLB	consolidating at 30MA on light vol
XLE	pullback to below 30MA
XLF	lower lows, lost the 30MA
XLI	moved up thru 30MA on light vol, encountering overhead resistance at 38
XLU	congestion below the 30MA, at support of 37.50

IWM finally cracks

A glorious day indeed with the IWM retacing to the 50% fibo! While I probably should have covered my short position going into the weekend, the big body red candle, trendline break, 50MA and 30MA breaks all convinced me that there is more downside room. The technical indicators continue to rollover so I'm still in. A little more volume would be nice on these down days but I like the steady decline of the various A/D indicators, showing that big money is moving out. Nice tight stops will keep my profit locked in, but I'm not in any hurry to get out. A full retracement to 64 would be just fine thank you.

IWM - the ongoing saga...

The IWM continues to be a bit fickle during intraday trading, but it ultimately finished the day by retracing to exactly a point of fibo, trendline, and 20MA support. A welcome move for the bears indeed, however, we now sit at a pretty significant support level. Volume is still quite light with just over 57 million shares trading today. On Balance Volume is about 1 Billion - it was 2.4 Billion on Oct 9 (the last white candle before rolling off of the highs). Offsetting the "support" issue is the fact that several technical indicators are rolling over and Historical Vol is at the highest its been since mid 2002. I'm hanging onto my puts for now and watching to see which way things move when we get some volume strength.

IWM Setup for Mar 27

Nothing serious happened above the 70 so I stayed away from the short term long. The low volume kept me from adding to my PUT collection. I'm short LEH, IBM, and XLF as well - all quite profitable today. AAPL is my favorite stock to day trade - I love the big moves it makes and lately it has been quite predictable. I was in and out of Apr08 100c and 170p all day. Great day!

IWM setup for Mar 26

While the IWM fights with resistance at 70, it's clear break through the established trendline could mean a run for 72 is in order. The low volume on this trendline break makes it doubtful so I have opened a short position (long May08 80p). A significant break above the fibo at 70 will make me a short term buyer - out at 72 and then open more shorts.