the Yuppie Pig

Of all the Brazilian stocks I follow, CZZ is clearly acting the best. It is already testing its 52 week highs on good volume. This company is benefits from the development of the middle class in Brazil. The risk:reward isn't great right now due to Friday's strong move, but it is hard to argue against the overall trend. Resistance is at 9.3 which should quickly move a point. It would be nice to see it trade in a tight range over the next couple days so a tight stop could be defined.


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On the 60 minute chart, we continue to get a lot of choppy back and forth price action. However, it is forming into a bullish configuration overall. It's a rather sloppy head & shoulders pattern which looks ready to test 1130. Words of caution are warranted as the momentum indicators are waning. The MACD looks ready to show some negative divergence on this next move, but we'll wait for it to play out.

I've also highlighted in blue, the primary short term support and resistance levels. We'll see which way we break over time.


Here's a look at the internals on the 60 minute chart. The following is the Advance Decline ratio for the NYSE. I have drawn a horizontal black line which shows the major spikes at 9:1 (advance:decline or vice versa) as the scale is a bit misleading.


I'll note that the retracement in the past couple of days was rather weak on this indicator. Of courses, these are secondary indicators and price is king. However, it is why I have a long bias; albeit weak.

The market continues to end the day in the most confusing position. We started the day with a sharp gap down, only to reverse by the end of the day, yet still close within a small downtrend channel that has formed on the intraday charts. On one hand, the back and forth trading suggests to me, that we would have more upside once this choppy trading is complete. Certainly, taken as a whole, the price action is not impulsive to the downside despite there being a couple very strong thrusts down.

And on the other hand, the market in general on the daily chart is still in a downtrend defined with lower lows and lower highs. My view now is to just reduce exposure and allow a few days for the market to settle down before playing more individual stocks either to the upside or downside.

Here's an old short setup that still has yet to be triggered. Looks good here.


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As the market has done many times in the past, it ends the day at the most confusing price of the day. I've updated my bullish and bearish view to reflect today's price action, but it remains essentially the same. The S&P remains in its uptrend, but it rests right on the lower trend line. Tomorrow, we'll quickly see which scenario, bullish or bearish, the market will evolve into.


Overall, I slightly favor the bearish case, simply because this rally does seem to be running low on energy. Yes, it is quite possible that today's losses will be erased however, I don't see significant upside without further basing. The 1115 to 1130 range offers significant resistance which I don't think the market can easily slice through.

I also want to note that the VIX and the Call-Put ratio have broken out to the upside which suggests further declines from here.

I don't often put up specific stock charts based on 60 minute triggers, but this one is much more clear on this time frame. On the daily chart, it is fairly compressed as much of the bearish price action has taken place over the past month or so. RL has rallied up on a bearish wedge to back test support which is now resistance. It also has "gap" resistance at this area. A break out of the wedge to the downside could be shorted using a stop just above the current level around $83-$84. This offers a pretty good risk to reward ratio especially if the market pulls back here. Short term indicators are all oversold. A downside target is potentially to the recent lows at $75 with pit stops at about $79.2 and $77.8.



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In addition to trading individual stocks, I on occasion, trade certain ETF's that offer some good risk to reward setups. Recently, I suggested that GDX could be purchased to play a market rally on Feb 7.

Gold Leading Market Up on Reversal

At the time, I wrote:

"Resistance looks to be in the 44-46 price range and would also be the upper channel of the current downtrend. If the market reversal continues over the next few days, I suspect gold and gold stocks will outperform the broader market."

Since then, this trade has done extremely well, however, the reverse now seems to be setting up. GDX is now sitting right on support and a little downside pressure should cause additional selling in gold stocks. On the daily chart, there is a clearly defined downtrend channel which perhaps is forming into a H&S topping pattern. (The neckline I have drawn in grey) If this pattern plays out, GDX could be testing and breaking its lows for the year. Furthermore, the USD continues to push higher currently.


Taking a closer look at the 60 minute chart, we can see support at $44, and that the GDX:GLD ratio has already broken its uptrend which tends to signal downside movements. Other technical indicators have rolled over and are now starting to point down. A good risk reward entry may be to enter short below $44 with a stop between $45-$46 which would also coincide with a break of this small bullish flag I have drawn in blue.

Here's a short setup for consideration under the bearish case. I would enter the sell-stops and if the market decides to take a sharp dive, this would likely be triggered. If the market on the other hand, chops down (and this is triggered short), I would potentially close out the position as per my overall portfolio exposure. However, if the volume and price action in MCO is very bearish, I'll just let the pattern play out with a stop.


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I took today's slight lift midday to further lighten up on my positions and now I'm at a net length of 29.5%. Here's are the two scenario's I am now working from. In green, I have the bullish case which today's action supports. (Although, one day's action confirms nothing. We will have to see how this unfolds over the next few days) This would be a shallow and choppy pullback that keeps the market within this rising channel I have shown below. 1105 should also now act as support. If the market decides to make another push up, I expect a test of the highs of the year.

The bearish case in red, would have the market pull back more decisively, breaking the uptrend channel. In this case, I would expect a test of the lows of the year. As you can gather, the nature of the coming move is key to determining the overall trend. At this moment, I don't favor either direction which is evident by my low net exposure.

In either case, the market is quite overbought (see the MACD and Stochastics above) and I will use any uptick to lighten positions further. I'm also in the process of looking for both long and short setups and I will allow the market to determine which of these are triggered.

I've already outlined much of my thoughts for the coming days in Friday's post, and I don't have much to add. For now, I'm in a waiting mode. The market is quite overbought and I want to see how the next pullback unfolds. Either an impulsive down would foreshadown a test of the lows, or a choppy pull back which would suggest more upside from here.

Here's my current composition of my trading portfolio. This is the portion of my account that I allocate towards short term trading for breakouts and ETFs. Periodically, I'll go over what my thoughts are for the market, and how I adapt my positions to my overall view on the market. Right now, the trend on the 60 minute chart is to the upside which is why my positions are net long, however, we're at the point of significant upside resistance so its in these areas where I look to take profits and scale out of long positions. As you can see, I tend to carry both long and short positions and I allow my stops to take my out of my positions and force me into the trend of the market. Overall, I remain in a highly cash position as this market needs to sort out its longer term direction.

Those are the 3 main reasons I think at this moment, risks outweigh the rewards for being extensively bullish.

Although the reaction to the Fed was reversed today (I noted to watch for that last night), it is a longer term signal, however slight, that the Fed may actually have the spine to implement some sort of exit strategy that takes the public trough away from wall street.

Today is also options expiration which might be holding up the market until the end of the day.

The market is also up against considerable resistance. The S&P sliced through the 1105 area without too much difficultly, but it really does need a rest before forcing its way through the 1115 level. At least, the short term indicators (5 and 15 minute charts) really need to cycle down and reset before the market mounts another upward assault.

Also note that on the 60 minute chart, the market is now trading up against the upper end of the uptrend channel. Here's my real-time updated chart which is statically shown below.


While none of this indicators themselves are sell-signals (price is king, all others are secondary), it does suggest that if you do have excessive net long positions, taking some profits here might be the best thing to do.

The futures are down about 12 points as I write this. The Fed, in a surprise move (at least in timing) hiked the discount rate up a quarter point. Asian markets are also down, but we'll have to see how the US markets react tomorrow on the open.

Asian markets fall as Fed's hike of emergency loan rate spurs investor concern about US growth

The Federal Reserve said Thursday it will bump up the so-called "discount" lending rate by one-quarter point to 0.75 percent effective Friday, part of a pullback of the extraordinary aid it provided to fight the financial crisis.

Lets take a step back and look at the short term market action on the 60 minute chart. We can see that the market successfully tested the 1105 level and is now backing off in after hours trading after the Fed induced move. Even with a 12 point drop, we will still be well within the uptrend channel which I have highlighted below. Naturally, a retest of the 1080 price level is in the cards. I should also note that all of the short term indicators on this time frame are now in overbought areas and appear ready to roll over.

Tomorrow's action will be important for two reasons. First, we'll see how the market reacts to the Fed news in the first hour. Second, its also options expiration which might add some volatility to the market. My inclination is simply to let my positions play out given their price objectives and to let stop loss orders force me into the correct market direction.

Today we hear from Legendary Investor and Speculator, George Soros.

Here's one of the highlights from Reuters.

• BOSTON (Reuters) - Billionaire investor George Soros' hedge fund more than doubled its bet on the price of gold during the fourth quarter, a portion of the firm's total U.S.-listed equity holdings of $8.8 billion at the end of 2009.


• Soros Fund Management owned 6.2 million shares of SPDR Gold Trust -- an exchange-traded fund that owns gold bullion -- at the end of the year worth $663 million. That was up from 2.5 million shares at the end of the third quarter.


• Soros and other noted investors like John Paulson have previously touted gold as a hedge against inflation, further economic turmoil or a decline in the value of the U.S. dollar. Last month at the World Economic Forum in Davos, Soros said "the ultimate asset bubble is gold," but he declined to say whether he was investing in the precious metal.

I wanted to discuss the apparently contradictory statement/action taken by Soros here. On one had, Soros' calls gold as the "ultimate asset bubble" and yet he doubles his stake. One of Soros' hallmark theories is that he coined as "reflexivity" where a change in price of an asset impacts the fundamentals of the asset. In this case, as gold rises, it actually spurs additional demand and thus drives additional buying which spurs even more demand in a virtuous circle. This continues until there is simply no potential demand remaining and prices fall resulting in a reverse, vicious circle. Right now, gold's demand is as an investment asset class back by the "lack of faith" in fiat currencies and rising prices only adds to its luster.

It's evident now that either my expected or bullish case (and not my bearish case) is playing out. The market popped out of the gate and is now moving up to test the next resistance level at 1105. It remains in a small uptrend channel. I think ultimately, the reaction to that level will be much more telling of the longer term trend. So far, this corrective bounce up has lasted about 1 week (as compared to 3 weeks of declines) and has retraced about 50% of the decline. This should meet any minimum requirements for a corrective movement, although I would not be surprised to see the market chop higher for the remainder of the week towards options expiration. There also does not seem to be any divergent signals which suggest today's move is fading on the 60 minute chart.


Overall, today's move was fairly strong and was much more impulsive as compared to the choppy trading last week, however, volume was very low. I would want to position either in cash or slightly net long and reevaluate the price action at 1105. Test of the highs are not out of the question as the long term trend could reassert itself. Note that the downtrend from the past 3 weeks has clearly been broken and the MACD and stochastics now look ready to turn up.


A repeat of 2004 looks like a realistic road map for the months ahead.

This pattern is nice and clean, except that it has on several occations broken below support and reversed by the end of the day. I would look to short this either here, with a tight stop, or wait for a CLOSE below 84.


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Here's a breakout candidate if the market decides to push higher. It has a clearly defined resistance level and is holding up very well in the recent bearish tape. The tech sector seems to be getting a little bit of a lift, so this trade idea plays well in with that theme.



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I have three scenarios right now that I keep in mind so that I'm prepared to cope with what the market presents. I've outlined these scenarios in the chart below. The scenario I favor the most as being most likely is in red. Right now, I continue to favor the bearish scenario since this corrective move up in the past week has really only retraced 38% of the decline and appears to be rather choppy and uncertain. I'll respect the fact that on this 60 minute chart, the downtrend has been broken so I wouldn't be surprised if we get another short push up to break resistance at 1080 (See second chart below) and push partially up to 1100 before resuming the downtrend.

The scenario in black is the bullish case which begins much like the bearish case, except the move up become strong and impulsive. If 1100 is breached, it clears the path for a test of the highs again.

The orange scenario is the extreme bearish case which I don't view as very likely unless there is some catalyst to shock the markets down immediately. This could be sparked by events in Europe.


Here's the 15-minute chart which shows clear resistance. This actually looks like a decent breakout setup, and perhaps could be played with a long SPY position just above resistance. However, I would only view this as a very short term trade potentially to hedge existing shorts being held. I also highlighted MGA as a potential long candidate should the market break out over 1080.

Magna International is a stock I mentioned some time ago. It has yet to hit its long term measured move target of about $64, but it's now digested its latest move and looks ready for another dash upward. Resistance is at the downtrend on this small triangle ($57.75) so a break above that price should start the next leg up, perhaps to $64. Volume has been declining during the consolidation period, so we will want to see a good surge in upside volume to coincide with the breakout when it happens. A stop of the uptrend formed by the bottom of the triangle can be used at about $55.


The overall strength will also be determined on the overall market conditions. Right now, the S&P looks like it could potentially break resistance at 1080 and this pattern measures 20 points to the next resistance level at 1100. If the market breaks above 1080, and MGA also breaks out, that should provide the needed fuel to propel the stock higher. Otherwise, it may have a false/weak breakout and chop back and forth.



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There's very little that the ECB and Eurozone governments can do to stop what is a trainwreck barreling down a dark tunnel. All it can do, is apply the breaks and see what happens. Right now, there is concensus that the ECB MUST step in and relieve the debt pressures from Greece. We saw that through the momentary stabilization in the Euro. However, that reaction was weak and reflects merely a change in expectation. If the market does not perceived the willingness of the ECB to indeed act, the Euro will resume its slide and force the issue. So, one way or another, it (bailout) is going to get done, leaving the door open for long term implications regarding the other indebted countries. Unlike the US and UK which controls its own monetary base, these countries are forced to live with the realities of a "quasi" free market currency system.


Protesting has already taken to the streets in Greece as the standard of living is dropped from its frothy western perch to globalized standards. It's not that these changes are impossible to cope with, but rather the swift and sudden change that is shocking to the public. Much like live frogs, you can boil them if you heat the water slowly, but drop one into a pot of hot water and it'll bolt out in a split second.

Greece: "The PIGS fight back"

• Yesterday Greece announced new tax laws designed to recoup the equivalent of 2% GDP. The 40% tax bracket will begin at E60k, and there's the traditional promise to crack down on evasion.
• Though painful, the 10% wage cuts, 12 year rise in the pension age and other measures, he says, can and will be borne by the people the trade unions represent. The markets have, for some two weeks now, begged to differ, and placed a massive $8bn bet on the Euro's collapse against other currencies.
• The youth they have little traction with - and it's the young who will get hit strategically: their working lives will be 12 years longer than their parents' generation, their wages will be lower, the economy they live in will feel less vibrant, their access to the shambolic education system will be constrained.
  

Well, close enough anyways. Take a close up look at this drawing and it feels eerily familiar. I don't feel that I have to say anymore on the topic.

Now lets look at something else that looks eerily familiar. In the 2003 market bottom, the market topped out the next year at about 1150.

Once again, here is my current list of short candidates to scale into as the market drifts high (without an impulsive upward breakout). Also, these can be shorted on breakdowns below support. Or potentially a combination of both. It all depends on your risk tolerance and style.

Don't forget, that these stocks are likely to trade together somewhat so there is very little diversification effect from trading all of these. I would recommend using stops above the short term resistance but you may want to give it a little room, as I suspect that the market has a bit more to move to the upside.

The market has had a couple of really choppy days. Yesterday, while the move was significant, had a lot of back and forth filling and thus, I can't view it as an impulsive upward move. Today's price action helped to confirm that. As a result, I'm maintaining my bearish view once this period of consolidation ends. I believe that much of the choppy action is the lack of information regarding the bailout of Greece. Compound that with more uncertainty with the Bernanke's Exit Strategy, and we have two conflicting pieces of data to contend with. Until these are resolved in some manner, the Greek Fire will continue to burn the market down.

Looking at the past couple of days, we can clearly see the backfilling and volatile intraday trading. It now seems to be forming into a small triangle, so we'll have to see which way it breaks out. I wouldn't be surprised to see the market hold out until we near the end of the week.


Examining the 60 minute chart, we clearly can state that the trend is down and will remain so as long as it is in this channel. If the market holds out, we could potentially break out to the upside only to trade sideways into the weekend. Only a move over 1105 is going to make me really reconsider the bearish trend. 1080 still remains my target to begin to layer in some short exposure with tight stops.

Today's start to the week was rather uninspiring for the bulls. We had a slight positive push out of the gate only to be pushed back with very minor resistance at S&P 1071. The rest of the day was spent drifting down before accelerating into the close. The trend remains down as I've said before, and it will remain so until it isnt. This isn't a time to over think things. My game plan remains the same. I'll look to scale into some short exposure as the market nears the upper channel (falling daily) which should act as major resistance.

With some of the speculation that perhaps the ECB is going to intervene in this latest saga of the global debt crisis, gold has rallied hard. Of course, their ultimate solution will be to print massive amounts of money to inflate the debt away which is going to leave hard assets rising in price which is the premise behind my view of gold's rapid price increase. The first tip off, was that it was actually green while the broader market was in the depths of the intraday lows and once the reversal began, gold stocks never looked back. It's one of those trades where you had to be watching the market intraday to get into. We saw positive price action, momentum indicators begin to trend up, and the ever popular (and still working) GDX:GLD ratio break to the upside on the intraday chart.

Taking a step back, lets examine the daily chart which suggests there is more room to run. If we operate under the premise that the ECB is entertaining the idea to flood the world with more money yet again and thus competitive devaluation of currencies (debt) is taking another step forward, then gold and gold stocks are going to make another advance. For the GDX (the gold stock ETF), we can see that it is going to break out of this descending triangle. I want to note a few technical points on this chart.

1. Massive volume on on the reversal day ending the day up 5% while the market was flat.
2. GDX:GLD ratio broke the downtrend.
3. Positive divergence on the MACD Histogram (not the MACD itself).
4. Stochastics are oversold and beginning to turn up.

Resistance looks to be in the 44-46 price range and would also be the upper channel of the current downtrend. If the market reversal continues over the next few days, I suspect gold and gold stocks will outperform the broader market. Personally, I use the GDX as a hedge to any short stock exposure I might have, as it is now positively correlated with the market.

The market staged a huge late day recovery. Typically, momentum driven declines simply continue until sellers are exhausted or some external force presents itself to alter the psychology of the market. In March 2009, that was the banning of short selling and the coordination of mass liquidity into the market. Basically, the US Government along with efforts by other nations created a multi trillion dollar wave breaker to halt the tsunami of selling. On Friday, the market seemed to consider the possibility of such an event occurring again by a coordinated effort through the ECB to contain the European debt crisis.

Secret summit of top bankers

While I think it is still premature for such a large coordinated effort, one could also expect government officials to act much faster this time compared to last year. A late day surge in gold suggests that more liquidity is on the way. What remains to be seen, is any real action taken on the part of elected officials in the wake of increasing public backlash towards bailouts of financial corporations with taxpayer money.

Looking at the charts, we can see the huge intraday reversal. From the decline which began on Wednesday, this latest move does appear to be a strong impulsive upward move. Thus (on this time frame), I expect some additional upside movement to retrace some or all of this decline. There is some resistance just above these levels but a movement up to 1105 is a definite possibility we must be on the lookout for.

Looking at the short term 60 minute chart, we can really put Friday's reversal into context. In reality, it was quite small, and a market retracement back up to 1085 would be perfectly in line with maintaining this downtrend. Should the market weaken at that level, it is where I would look to layer in some short exposure with tight stops. These are the names I have under consideration. You can also see the most updated charts here. A move up to 1085 would only retrace approximately 38% of the decline. For Fibonacci fans out there, that would suggest a resumption of the decline and lower prices ahead.

Regardless, at this time, the trend is down and we must be weary of any long side positions at this time. The reality is that the market has given up about 8-9% after running about 73% from the March lows last year. Quite a few analysts and fund managers target a fair price of about 850 on the S&P500. While I've found valuation never to be a good reason on its own to go long or short, this could be a longer term target for mean reversion which could easily be overshot.

The uncertainty in Europe is the primary reason for this latest market route (The Obama administration isn't helping either) and as long as it remains, it is going to weigh on the market. There is no definitive timeline for it to end. We'll have to closely monitor world events for such a catalyst to end the uncertainty. (such as a massive intervention by the ECB) Other indicators would include reaction to earnings (CSCO reacted well) and of course - price action. Only then, do I think the decline ends and the potential for new market highs returns.

Here's 5 technical short setups. A few words of warning are warranted here as the market sold off drastically today. A corrective upside bounce could occur at any time and in these situations, it is not uncommon for stocks to make a quick move down, potentially breaking support and then subsequently the market rallies hard in a bounce taking stocks back above the support price. For that reason, either wait for the market to work off its oversold condition before entering these trades, allow them to play out, cognisant that a wide stop may be needed, or if the market rallies here, enter the positions as they reach closer to the suggested stops and scale into these positions. These choices depend on your own portfolio and risk tolerances.

I've put in the target price using calculated measured moves, however some of these are below logical support areas. I would first expect bounces to occur at these areas prior to making the full measured moves. I've also highlighted possible support areas on these charts.

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"Greed is good"

The film is set 23 years after the first film, in June 2008, and Gordon Gekko (Michael Douglas) has just been released from prison. Despite his initial attempts to warn Wall Street of the forthcoming economic downturn and stock market crash, no one believes him due to his reduced standing in the financial world. Gekko decides to re-focus his attention on rebuilding his relationship with his estranged daughter, Winnie (Carey Mulligan). Due to their time apart, and the fact that Winnie blames Gekko for her brother Rudy’s suicide, she avoids any contact with him. At the same time, the mentor (Frank Langella) of young Wall Street trader Jacob (Shia Labeouf) unexpectedly dies, and Jacob suspects his hedge fund manager of being involved in the death. Jacob, who is Winnie’s fiance, seeks revenge and agrees to Gekko’s offer of help, in return for which Jacob agrees to help Gekko with Winnie.



GG

Given the recent weakness in tech, here's an update on my valuations of some of the cloud computing names. Check out my older posts for a full summary of the sector and more on their valuations. Note that this analysis is merely an update of market prices from my last analysis and does not factor in the latest earnings. Google is becoming to offer some attractive valuation, however, its dealings with China will continue to weigh on the stock indefinately until some resolution is found.

1. RAX: valuation $16.37, market price $18.87 -> 15% premium
2. TMRK: valuation $7.56, market price $8.21 -> 9% premium
3. TMRK: alternative valuation $10.15, market price $8.21 -> 19% discount
4. GOOG: valuation $649, market price $540.82 -> 17% discount
5. CRM: valuation $62.25, market price $65.62 -> 5% premium
6. EQIX: valuation $55.59, market price $96 -> 73% premium

So far, we've seen some of the premiums reduce a bit, notably on RAX, now at $18.87. For now, this remains my favored Cloud Computing name.

Pretty quiet day on the markets today. So far, it seems that the corrective upward move to 1115 (potentially to 1130) is still in progress. I don't see many good trade setups so this is one of those times where it's just best to hold positions with appropriate stops according to your risk tolerance.

CHRW is one stock highlighted as a short candidate due to its triangular pattern accompanied by bearish volume. It reported last night and promptly sent the stock down immediately to our target price. It was a great trade, although I will admit that holding stocks through earnings is typically a higher risk maneuver. But in this market, more often that not, even good earnings are sold. I've still got a few long/short setups ready, but you may want to wait to see how this current rally resolves itself depending on your timeframe.

For tomorrow, it looks like the gold ETF (GDX) can be bought as it is forming a small bullish flag. Assuming that the broader market moves higher, I think this one will follow. Perhaps we can still get another couple points out of this stock.