Hello everyone, watching the current market price action is like watching grass grow or paint dry. Granted, we have had a nice and painfully slow upward movement in prices but keep in mind folks we are still showing a lot of bearish divergence and other indicators are also saying its time for a pullback…does this mean a pullback will occur right away? No, it doesn’t but you should be very careful we we end these last 2 trading weeks of the year as you set your goals for 2011…I personally believe the risk of a larger move currently is to the downside but should that move find solid support at one of the levels I have outlined previously, then I will look to go long….should it keep dropping a few shorts will then be the order of the day…folks, always remember you should be following the market, not guessing which way it will go next.

Looking that the Daily Chart of the Dow below you can see how it is moved up very nicely to our upside measuring objective of 11,600 and has now run into road blocks. The Dow could not hold onto the 11,600 level into the close but it did hit the number. Again, same with the S&P 500 the Dow is showing a W5 up which indicates a possible directional change in price movement. In the chart I have highlighted possible support should the Dow move down.

Please have a safe and enjoyable New Years!

Trade Smart — Not Often

hpb

Hello folks I hope all of you are having a really good Holiday season with your family and friends. Please enjoy this week’s trading update. My voice is still not strong enough to carry a video update, but I am most hopeful it will be in a few more weeks….

Well, this holiday-shortened week included further evidence (for most bulls anyway) the U.S. economy is gaining traction and getting itself well poised as we approach 2011….data released this week showed increased consumer spending in November and companies stepping up orders for equipment. In addition, GDP estimates are being revised upward and corporate profits are up sharply giving U.S. stocks the ability to log their second year of impressive gains.

I was watching the VIX this past week and it’s been the lowest since the financial crisis even begun. This past Wednesday the VIX closed at 15.45 which was its lowest close since July 2007 but finished the week at a still comfortably low 16.47. With a VIX this low it could be indicating complacency in the markets; -meaning too many people are bullish and getting too comfortable with the ever upward stock moves…and keep in mind the people in the markets tend to move in herds and that herd moves usually tend to be wrong.

So, the price action this past week against a backdrop of mostly stellar corporate profits and positive economic reports helped extend a climb that now has the Dow up about 11% for 2010, the S&P 500 up nearly 13% and the Nasdaq rising almost 18% for the year.

Looking at the daily chart of the S&P E-Mini Futures below you can see I have put another upside resistance to the price action at 1308….this price was last seen in August 2008 before the market cratered and will serve as strong upside resistance….you can see we still have strong bearish divergence and the W5 up as a strong hint at a coming market pullback….the 50 EMA is sitting right at 1203 which could serve as support should the markets pull back…currently I am not long the markets, nor short, I am waiting for a good pullback to pick up more long positions.

Looking at the Russell 2000 chart below you can see a slightly different picture….in this chart we are on a W3 up, not a W5 which indicates we may have a pullback but not a change in trend….a W5 leg up indicates a change in overall trend is coming…so, to me this is telling me a lot of money is probably coming out of the larger cap stocks like Amazon, Net Flix, Price Line and others and going into small cap stocks…also, looking at this chart below I have shown you there is no bearish divergence which means this recent up move is validated by underlying strength…this is why you may be seeing tired action in those other charts while this chart indicates aggressive bullish action.  But if the markets all pull back this price action will also pull back and a very strong support zone is a combination of the 50 EMA and the 25% Fib levels, or around 740….this would be a normal and healthy pull back where you could then dip in and pick up more long positions.

These last two weeks of the year are always hard to trade since it does not take much to spike volatility and with the trading volumes even lower than the Friday after Thanksgiving gives you an idea of soft the markets are…in quiet markets like this very little movement is expected to the downside but should it occur it will be quick…as I mentioned earlier, I took the remainder of my longs off this table this past week happy that we hit our upside measuring objective and for those that followed along good for you as well….

Enjoy the remainder of the year and have a Happy and safe New Years…

Trade Smart — Not Often

hpb

Hello everyone, I hope you’re all having a great end to 2010 and enjoying the upcoming Holiday’s….I am sorry to say that like last week, I must also send out a text only update this week as well…I have not regained my voice but the doctors tell me it will be at least 2-3 weeks…well, I am in week # 1 and I already miss not being able to talk, but I hope this blog post will suffice…as soon as I get my voice back all of you will be some of the first to know….thanks again for your understanding…now, let’s take a look at the past week’s market action.

Improving economic numbers helped lift equities in recent weeks, and this most recent week was not an exception. The Dow last week gained 0.7%, while the S&P 500 rose 0.3% and the Nasdaq climbed 0.2%.   So now the US stock market sits at its loftiest perch since before Lehman Brothers collapsed over two years ago….

On one side of the equation you have the Bulls that will argue the combination of improving economic data, stronger corporate fundamentals and recent clarity on future taxes should propel equities even further.  Conversely, market bears contend the U.S. economy remains dependant on the cheap money supplied by the Federal Reserve, that U.S. debt levels will someday need to be addressed, and that the impact on stock valuations once the scenario changes is uncertain.  Oh, and let’s not forget what is going on over in Europe with their sovereign debt issues.

Since March 9, 2009, total returns for the S&P 500 have risen an amazing 91.1%, and most of that growth has come without the participation of individual investors. And since the May 6 flash crash many more individuals existed equities in masse.  Folks have to keep in mind that roughly 50% of the S&P 500 profits come from offshore so we don’t really need to have a booming growth here in the US to support rising corporate profits.

But as you can see in the US Bond Markets the yields have been moving upward recently while the bonds are moving down…this will support a stronger dollar but at what cost to US equities?  I personally believe this will be the question of 2011…the impact of interest rates on overall continued growth of the US Equities markets.

For investors keep in mind the next two weeks we will see less volume in the markets and possibly more volatility.  The consumer side of the economy seems to be on the upswing lately at least and economists will be watching closely this coming week to see if business spending keeps pace. This will be why the durable-goods orders report for November will be the key release of this holiday-shortened week…remember durable-good orders feel a sharp 3.4% in October with widespread declines across sectors. So now I believe analysts will want to see whether the weakness in October was an aberration. On Thursday, the Gov will release the new-home sales report at 10:00 a.m. but the number I will be interested in is when the Gov will also release the third and final revision to the third-quarter gross domestic product. Stronger-than-expected inventory building in September is expected to boost GDP to a 2.8% rate from the prior estimate of a 2.5% gain.

For those of you that have followed along with these blog posts then I hope they have been very helpful for you and your trading/investing strategies…we have made some very good calls here both to the upside and the downside and I look forward to an equally rewarding 2011.

Before I wrap it up let’s take a quick look at the S&P and the Russell…first up is the S&P E-Mini’s but let’s start with the weekly chart first….as you can see, the weekly shows we still have upward mobility available…the MACD is still showing strength but we finished atop the 61% Fib level with a candlestick doji which does show market indecision.  The true Wave count on this chart is not correct as I believe we are in a 3 Wave up on the weekly….

If you look at the Daily Chart of the S&P E-Mini below you can see where clearly we have run into strong resistance….downside support continues to sit at the 50 EMA as indicated on the chart…the MACD shows bearish divergence as well indicating a possible pullback…

Let’s look at the Russell 2000 which seems to be on a very strong bullish run here….as you can quickly see in this weekly chart of the Russell, it has run further and faster than all the other indices….this tells me more capital is seeking to find riskier type bets than bonds and treasuries….when the risk trade is off then you will see the Russell move faster, both up and down….you can see the upside resistance point is 800 which we have almost hit so far….

So, as we approach the end of the 2010 it has been a really good year for us…we’ve been able to capture both strong bullish moves as well as the big bearish move we caught this past April….and as usual the markets will no doubt have more surprises in place for us and it will be only those that are aware of what to look at and how to prepare will be able to best capitalize on them….

Trade Smart – Not Often

hpb

Hey folks, here’s a quick update on the S&P price movement and what could possibly come next…as you can see below we are currently sitting on top of a W5 which usually indicates a change in trend where we also see the MACD throwing off several bearish signals; -first the bearish divergence, then the bearish cross and now the bearish cross of the signal line…does all of this mean the markets will head lower tomorrow? Not really, but it is indicating the markets are getting tired at these levels…should we have a pullback in order to give the existing S&P bullish move more strength I would like to see a pullback to the 50 EMA or 1195 (blue line) for some consolidation and then a move higher…similar to what happened beginning in early November….I will be watching prices closely to see if we can break key levels to the upside and then hold…that would be around 1245 for the E-Mini’s on the upside, but should it pullback I think a small pullback would be welcomed….I am on the sidelines now watching how the markets will go to determine my next move….

This chart below is the 10 Year Treasury Note Futures…as you can see how I laid out my comments, before the fall, we had some early warning signals to prep for the down move…first is the W5 as shown which indicates a possible change in trend…next up was the bearish divergence in the MACD showing lack of upward momentum and strength….now if you don’t trade the Futures markets the easiest way to play the bond market is using the ETF’s TBT or TLT….first up, the TLT is a 20 Year Bond Fund and will move in the direction of the chart below…so, rather than using Futures you could have used options on TLT by doing Bear Put Spreads…it would be have been (and still is) a great trade….the other way to play the Bond market is using TBT with is an Ultrashort 20 Year that moves at 2x of (and in the same direction) as Bond Yields….so you would have put on a Bull Call Spread in the TBT betting on rising interest rates….either of these trades would have performed very well for you….I think there is much more potential profits in the Bond markets with everyone placing their bets; -from the Feds that are betting they can keep the rates down, and the market participants that are betting they can’t….so far the winner is clear, but hey, all you guys should know that since you’ve been reading this blog….

As a reminder, our Saturday Trader User Group session is canceled due to me not being able to use my vocal cords…they are coming back but I suspect it will be a few more weeks…we will continue with our January session.

Trade Smart – Not Often

hpb

Hello everyone, I hope you’re all having a great weekend….this weekly update will be done via this text blog only since I have completely lost my voice for the time being….as a reminder, our Monthly Saturday Session for next week is also canceled since all the doctors are telling me to get a lot of rest, especially my voice….I suspect we’ll be back in full force for our Saturday session in January…again, I want to thank all of you for your cards and letters as they have been very helpful…I must say this has been the most unsettling and changing 6 month period in my lifetime but so far so good…my motto (as corny as it sounds) is to go into it with a smile and come out of it doing the same…and I want to let all of you know that your cards have helped in that endeavor…so thanks again!

Now, let’s get to the markets for this past week….Up 0.3% for the week, the Dow on Friday gained 40.26 points, or 0.4%, to 11,410.32, its best finish since Nov. 5. The S&P 500 Cash Index added 7.4 points, or 0.6%, to 1,240.40 on Friday to close at its highest level since September 2008. It rose 1.3% from the prior week’s close. And finally the Nasdaq on Friday rose 20.87 points, or 0.8%, to 2,637.54, its highest level since December 2007. The tech-laden index tallied a weekly gain of 1.8%.

And it certainly seems that for the first four days of the week we were just treading water and the markets traded in a very narrow range. All the index’s from the Dow, the S&P and the Nasdaq are pushed to new levels.

Keep in mind folks that this week’s gains occurred against a backdrop of a whole lot of worries and unsettling economic developments. The Feds can’t seem to control the interest rates as they indicated with QE II when we saw the 10-year Treasury yield up toward 3.3%. Oil prices also rose as well briefly touching the $90 level before backing off later. And across the pond, to add more misery are the violent student protests in England over tuition hikes….and when Europe seems to display more anxiety so does our markets. Perhaps the big news/non event was the deal between President Obama and Republican leaders to temporarily extend Bush-era tax cuts. I say non event until we just know if it will also be supported by the Democratic party as well…I believe at the end of the day it will and that alone will help “goose” the market further. In fact, according to Goldman Sachs, “this package will help strengthen the recovery.” and going on to say this deal help the economy grow as much as 3.7% in 2011, up from its earlier forecast of 2.7%.

Finally, next week marks the expiration of options with a Dec. 18 expiration date…in fact it is triple witching week since we also have expiring indexes and futures as well. How have December expiration weeks fared since 2000? According to Schaeffer Research going back to the year 2000 until 2009 option expiration week has seen only 2 down weeks and 8 up weeks for an 80% win rate….of course nobody knows for sure, the ultimate determining factor will be where price lands and that is how we set up our trades, based upon past patterns, current support and resistance zones and momentum.

Upcoming reports for next week really start next Tuesday with the Labor Department release of the producer price index for November, while the Commerce Department will report on retail sales for November and business inventories for October. The Federal Open Market Committee will issue its latest decision on interest rates. On Wednesday the Labor Department will report on the consumer price index for November. The Federal Reserve will release the Empire State Manufacturing Survey for December and industrial production numbers for November. The National Association of Home Builders will publish its Housing Market Index, a measure of builder confidence, for December. On Thursday the Labor Department will give us its weekly look at jobless claims, while the Commerce Department will report on housing starts in November. The Fed will report on manufacturing activity in the Philadelphia area in December. And finally on Friday the only economic report on the docket for Friday is the Conference Board’s leading indicators for November.

On the sentiment front, the ETF’s International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) 50-day buy-to-open put/call volume ratio is in the process of turning higher from low levels. This activity could indicate that hedge funds are in the early stages of accumulation.

Now let’s look at the S&P 500 Chart and see what it’s saying…..as you can see below, we have not hit our upside measuring objective of 1236…in fact we pegged it exactly!! Now I am not always this precise but we have been tracking this number for some time now…price will need to close over and hold for this to be a valid break in upside resistance…we still have lot of Bearish Divergence indicating there is less strength in this up move from the previous up move…we have good support at the 50 day EMA should the markets pull back…right now I will begin to take more off the table until I am sure prices can hold these levels…..a break of the 50 Day EMA will indicate fundamental weakness…

If we look at the daily chart of the Dow below we can see a similar set up….just as we are on the S&P E-Mini’s we are moving up a W5 to our resistance point at 11,600…although this indicates more upside is available to us we need to keep in mind the market had a hard time beating the last highs formed around 11454….if we break that number then our resistance levels will be hit quickly I believe…but again, notice the possible Bearish Divergence set up in the MACD below…this is very common with W5 up moves until a pullback is in order…

And now let’s look at the Nasdaq to see how it’s fairing….looking at the daily chart of the Nasdaq you can quickly see the patterns are almost similar across all indices…we are in a W5 leg up with our upside resistance already hit…what next?  Like the S&P if we can move above and hold then resistance will have been broken and I believe you’ll see the markets move higher more quickly….if not, then a possible pullback is in order…possible support zones will be the 50 Day EMA at 2499 or around 2500…notice we also have the Bearish Divergence in the Oscillator at the bottom of the chart further indicating weakness in this up move compared to the prior one….

So folks, there you have it…our 3 primary indices all making new highs and hitting or slighly over resistance…if prices can hold that will be very bullish and I believe we’ll finish out the year to higher…should prices back off we could quickly see a sell off which given the large upward moves we’ve had be normal….I will stay on the sidelines mostly until I can get a better idea of price action around these key resistance levels….

Trade Smart — Not Often

hpb

Today’s price action reminds me again of how either bullish or bearish energy can be diminished in and around support and resistance zones. Looking at the daily chart of the S&P 500 E-Mini’s below you can see how we were hung up for almost 2 weeks at our support zone which is the Fib 25% levels and now we are fighting our upside measuring objective of R2 or 1236…how long can this go on? Well, it typically takes price action around bottoms or support zones a little bit longer to move one way or the other…for resistance zones it usually will not take as long for prices to determine the preferred direction…once that direction is chosen you’ll see prices move quickly…the talk on the Street is the stimulus efforts of the Feds plus the pending tax breaks (I know, I know they have not been passed yet with the politicians still duking it out I would be willing to bet they do get worked out) will stimulate the economy accordingly….my bet will be for higher prices, but again, let’s follow the price action, not try to guess, otherwise we’re only risking more than we have to….however it would not surprise me if we do have a good pullback before moving above 1236 but let’s see how it all shakes out…..

If we do move above the 1236 R2 zone where can prices go from there?  Well, looking at the same Chart of the S&P 500 E-Mini’s but on a weekly basis you can see I plotted two longer term resistance zones to consider below…first up is 1314 and the second is 1431, each representing a major zone in 2008 when all of this mess initially started.  You can see in this weekly chart we’re still showing bearish divergence and the upside resistance zone we’re on now is holding firm…I also plotted longer term support zones should the markets turn back down….

One other chart I thought interesting to look at is that of the CBOE Fear Gage, or the VIX which measures volatility.  You can see in this daily chart of the VIX we are now approaching the lows (VIX closed today at 17.25) reached right before the large market declines we saw back in April of this year…with very low levels of volatility option strategies can and should change if you are trading the SPY…keep in mind these levels can spike very quickly should be get a market pullback….

And finally, looking at a number of the major sector ETF’s, many of them are on extended W3 or W5 patterns and showing bearish divergences…the Technology sector ETF (XLK) is showing very strong bearish divergence on a W5 which usually indicates a pullback is forthcoming…in fact the only major sectors that are showing bearishness now is the Utilities ETF (XLU) and possible Healthcare (XLV)….in some upcoming postings for our members I think there will be some good trades that will set up and I will send you a notice when they do….

Trade Smart — Not Often

hpb