Friday, June 29, 2012

SPX - Decision Time

You simply can't make this stuff up.

SPX is following the exact same path as in 2011 (highlighted by arrows). If the price takes out June 19th high on closing basis, SPX has a chance to break the link. If it rolls over, then 2011 scenario will play out.

Next week is going to be crucial...

click on chart to enlarge

Wednesday, June 27, 2012

SOX Death Cross

For the third year in a row Philadelphia SE Semiconductor Index has a death cross on daily chart in the middle of the summer. Many of my followers know that I have been a big fan of this index. It is a cyclical indicator within the leading market sector - technology, and therefore it has an ability to predict sudden turns in the economy.

Without a doubt in my mind, SOX daily chart structure will have to reverse itself in order for the entire market to bottom and head higher. Bulls hope that SOX is going to do what it did in 2010, when death cross actually came near the bottom. Back then the price was able to get back above 50/200 dma and stay there.
But note that at the moment the bears are in control. The chart is now closely resembling 2011 scenario, when 50/200 dma cross was backtested and price rejection occurred. If this path is being followed, then the entire stock market is in for a major pain still to come.

Put this chart on your dashboard, and follow it religiously. It will save you from trouble.

click on chart to enlarge

Tuesday, June 26, 2012

Happy Birthday!

Today is a one-year anniversary of View On Markets.

My blog was started in attempt to help other traders, but at the same time it became a big help in my own trading. I hope that my readers gained from fundamental and technical market analysis displayed here. I am sure that some did not agree with my views, and it is perfectly fine with me. Differences of opinion make the markets.

I made some pretty amazing calls here, and some that were not so great as well. I covered topics which were important for day, swing, and position traders. Perhaps I sparked some interest from long-term investors as well. I am a trader. I ride the wave. I change my mind often. I am not perfect - nobody is. I learn from my mistakes. I celebrate my good trades. I reward myself but remain humble. I want to be better on my next trade.

It was a great pleasure to openly express my views. But after 365 days and 444 posts, I think that I may have developed a mild case of writer's fatigue. No, it is not a writer's block, as I still generate ample amount of thoughts in my head on daily basis. Yet I have not had an immediate urge to document them, and therefore have written less often lately, to a certain extent.

My blog will continue to be here. Frequency of posts will increase as soon as I regain my desire to write more.

Big thank you to all of my readers!

Summer Trading Range?

My view is still incomplete, and more information is needed, but I am leaning towards this scenario: SPX may be settling into a summer trading range.

Trading ranges could be both torturous and rewarding. It is not advised to get involved in a big way in the middle of the chop, but trading the boundaries could be very lucrative.

So why the trading range for SPX? Very simple... On one hand we have Eurogeddon and slower world economic backdrop. Those factors are counterbalanced by Bernanke Put, safety of solid corporate fundamentals in U.S., anemic but existent U.S. economic growth, and refuge from economic and political instability abroad. And no, I am not talking about decoupling. SPX is still weighed down by ailing world markets and U.S. fiscal cliff, hence the cap on the upside.

Technically speaking, chart has support at flat on the year, and resistance now comes in at 1350-ish. Therefore you have roughly 100 points to chop inside of, possibly for the rest of the summer. If 100 points is not enough for you, then early summer vacation just got much more enticing... For those who are still going to trade this possible range, remember the following: beware of the traps at boundaries of the range, it is easy to get excited and carried away - keep your emotions in check.

I will try to further assess this scenario and will update my readers on this possible development.

Saturday, June 23, 2012

Pancake Time

When traders go flat, things start to look more clear to them. During having the position on, traders are blinded by their bias and precluded from fully considering both sides of the equation. It is our human nature to defend our views a bit longer than needed, so we are usually behind on fully realizing that we are wrong. Traders who repeatedly stand in front of the oncoming freight train, without quickly learning the most likely consequence, should step away from trading and seek some psychological training, either by reading books or hiring a trading coach. By the way, I personally do not believe in trading coaches, because traders get used to being babysat, and will usually fail without an extra pair of eyes looking over their shoulder. That leaves books as a helping hand, and I strongly recommend for struggling traders to explore that avenue first. All a confused trader needs is some guidance on how to mentally prepare for the next trade. Trading psychology books will also teach a trader how to deal with sudden failure and/or success. Note that both could be equally detrimental to trader's career.

I enjoy being flat. It gives me an opportunity to research and approach the market with fresh mind and absolutely no bias.

I am currently flat as a pancake, and ready to react to market's signal, whichever way it tells me to go.

Thursday, June 21, 2012

Now we have a change

Eject, eject! There is absolutely no reason to fall in love with your position. When the facts change so should your thinking. 
 "If you never change your mind, why have one?" 
Edward de Bono
What a difference a day makes. Today Philly Fed Mfg Index cratered (third month in a row, which is an undeniable trend) and told us that we are possibly looking at the same scenario as the last year, when it led SPX to a nasty summer sell-off. Will it happen again? I do not know. But my dashboard instruments told me to eject...

click on charts to enlarge

Wednesday, June 20, 2012

Nothing Changed

Another day, more frustration for bears. Follow the path of maximum pain. Turn your TV on (the only time I would want you to) and listen to "I am 100% in cash" traders. Those are the bears who got out of the way. Then sell to them and those who are still in the way, as they pile in on the approach of SPX 1375 - 1400, in fear of totally missing the rally.

Check your charts, your dashboard. No, no, not what you wish for, but the actual information that is in front of you. Force nothing, trade what you see. Change your mind only when presented with new facts.

This is not so hard, not as hard as you think it is...

Tuesday, June 12, 2012

Trade like a King

Last night, while I was watching Stanley Cup final, I heard very interesting analogy between hockey and trading. In the post-game interview Jonathan Quick (L.A. Kings' goalie, who was also MVP of the playoffs) said that the reasons L.A. won the Cup were their "work ethic and relentless drive to compete, no matter the obstacles and adversities". Kings were seeded 8th (the lowest) among the Western Conference postseason teams, but went on to win the Stanley Cup, while setting a myriad of records (which are all listed in this article).
Why am I mentioning that here? Individual traders are considered the underdogs of the investment community. 95% of individual traders lose money - what a staggering statistic! We are destined to fail. The odds are completely not in our favor. The odds were stacked up against the L.A. Kings as well...

I used to be a part of some trading chat rooms, where I interacted with small traders on daily basis. I heard so many stories from other traders about why they failed or could not get themselves elevated to higher level of achievement. For the most part, none of their stories concentrated on themselves. Instead, time and again they would blame their busy schedules, lack of money, computer and/or internet connection problems, bad brokers and/or trading platforms, (and in many cases) big trading houses which rig the game and rip small traders off. That is one long list of odds stacked up against the traders, but in my opinion, those are rarely the true reasons for traders' failure.
Here is the more likely list of things causing traders to fail:
total lack of: knowledge/education, trading experience, discipline, accountability, trading plan, clear achievable goals, perseverance, dedication, and respect for profession;
an abundance of: arrogance, incompetence, ignorance, and improper risk/reward ratio.

I could go on to list the pitfalls of trading profession, but my point here is for you to find your own true reasons for not being able to compete on the highest level of your potential. Find these reasons and eliminate them, so you can trade like a King!!

Friday, June 8, 2012

Inside the Mind of a Trader

If you are a beginning trader you need to know that trading has to do a lot with being able to change your mind, and do it very quickly. Long-term investors have more time to adjust their positions. Depending on your style of trading, you may need to learn how to change your mind a few times a month, a week, even a day. If you are someone who is very dogmatic in your thinking, and are not used to changing you mind quickly, you need to reconsider...

So we have a lot to think about over the weekend: econodata from China, possible Spanish banking system bailout/recapitalization, and soccer. OK, the last one is not as important, but a real fun away from trading. You have to relax your brain and take your mind off trading, or you will go nuts.
If Chinese data comes in soft - mildly bearish outcome, but then we should expect more rate cuts. If the data comes in stronger, then what the heck was the cut for? Confusion... If  it comes in as expected, it will have a mildly bullish outcome.
No Spanish banking bailout - bearish. If bailout occurs, would be mildly positive, but duration of rally depends on how it is structured (through sovereign or direct). I think that if Spanish banks get a direct help from EU, it sets a precedent for other struggling EZ banks. That is where it would get really interesting. Some EU TARP rumors are flying around, supposedly being pushed by Geithner. But I remember what happened the last time he told EU leaders what to do. I will believe it when I see it, enough said...

So with the above in mind, it is a constant puzzle for traders. You have to navigate the maze and change on the fly. Are you ready to change your thinking based on the changing data, and therefore adjust your trading positions on the fly? If you answered yes, you are half way there - the other half is developing and trading your plan.

Thursday, June 7, 2012

Market Thought

The best day of the year did not just come out of nowhere. Single biggest reason for yesterday's rally was the fact that so many traders went flat last week and needed to get back in when SPX regained 200 dma and 1300. In few days leading up to yesterday's running of the bulls, all I heard was the question about how much lower equities could go. Not a single time have I heard a question about the bottom being reached. Rallies are built on the backs of doubters. I think there is more upside to come, especially if 1330 is taken out decisively.

Sunday, June 3, 2012

SPX 2012 vs 2011

If you decided to follow media's coverage of financial market this weekend, you would think that the world is literally about to end. Zerohedge showed a slide presentation (by macro investment newsletter) about how the financial world ends in 2013. All media widely covered George Soros's speech on how Eurozone has three months (probably the time his put options expire) to fix its problems, or it will cease to exist. CNBC is airing "Markets in Turmoil" weekend special. All of the above should scare any investor into prolonged hiding in the basement full of non-perishable foods.

Dear readers, SPX is down 10% or 144 points from this year's top. Do you think that market did not know?
I hear a lot of traders mention how this year is a carbon copy of the last, and they are correct so far. A detailed comparison, which I put together on the following chart, reveals why SPX may be about to bounce and deliver a surprising blow to complacent shorts, and only after that to resume its downward path of wealth destruction about a month from now.

Study charts and turn a deaf ear to media hype.

click on chart to enlarge

Friday, June 1, 2012

Uncomfortable Feeling

Some time ago, I promised that I would become bullish on the stock market once again. Today I added to my position on the close and now I am at my longest equity exposure this year. To be exact, I am long SPX (now below 1300 avg) and I expect this to be a core holding in my portfolio. I have to say that I am extremely uncomfortable in this position, due to marginal breach below 200 dma. But if traders did what was comfortable all the time, they would probably not trade for a living at all. This is a contrarian trade, and many of my followers are probably not agreeing with me. Heck, a part of me is not agreeing with myself as I type this.

Why am I getting longer here? I, who was a grizzly bear above 1400 on SPX, and said that this market is frothy and will sell off hard. I was short then, when many said "decoupled SPX is heading to 1500 or even higher". And now I do not want to be with those (probably the same people) who are screaming that "the world is about to end". This is simply silly, they are now selling what they thought (just a month ago) was the best asset to have among all asset classes - SPX. Today they all woke up and realized that decoupling was just a myth. Fine, let me have their SPX pukings, even if I have to wait for a while to be vindicated.

So it is with great trepidation that I would like to announce an official bull on this blog. I may be totally out of my mind: China, Europe, Brazil, Australia, India, and now U.S. - are all slowing down. But folks, I knew this 10% or 144 SPX points higher. Am I going to panic now, when everyone else just decided to pay their lazy attention to this??

Do not sell the lows, do not panic... If you want to go to the sidelines, that's fine, but do not sell the lows, please. Now, nobody knows where the lows are, but they are heck of a lot closer to here than 144 SPX points above.

With so many negatives surrounding today's decline, let's quickly address a few positives: Dow Transports did not make a new low, Nasdaq 100 is still above 200 dma, and momentum indicators are not confirming lower low in price on S&P 500.

click on chart to enlarge