Stock Market Analysis

Sunday, March 01, 2015

Why Three Down Days?

Since my last post, the US market has rallied exactly as and when I have predicted and my Master's Stock Options Picks subscribers have been prepositioned and have profited from the move, have you?

So, economic data is looking good and the US dollar strengthening, it seems like this market continues to look to upside, so what happened the past few trading days? Why three down days?

Well, every rally needs a breather, it seems like the market is simply taking a breather after such a strong month long rally. This is when we want to strategically take short term profits on short term bullish positions and also watch the 30MA line in case of any failure which will warrant a reassessment.

For now, here's a very happy Chinese New Year of the Goat for all Chinese readers and wishing everyone a very prosperous year ahead!

Wednesday, February 11, 2015

Is The Market Ready For a Breakout?

Is the market ready for the breakout?

This is probably one of the biggest questions traders are asking as the market enters the third month of its sideways volatile behavior. One thing is for sure about such volatile channel behavior; that it breaks out strongly one direction or the other eventually and that trending behavior lasts much longer than sideways ones. This is what makes Neutral Options Strategies so tricky to implement in options trading.

Even though I hold the outlook that we should see a significant correction this year, the way the market has behaved over the past two trading days suggest that this may not be the start of that correction. In fact, more than any time over the past 3 months, the market looks cocked for an upside breakout. Like I always said, as a trader, there is no place for soothsaying... predictions and outlooks are merely entertainment, it is the actual price action that we believe in and trade in.

The price action, particularly the generally market leading Nasdaq100, over the past two days has strongly suggested an upside breakout due mainly to how the market has held up against continuing downwards following the evening star candlestick formation on 9 Feb 2015. That formation was the perfect formation for the market to continue downwards, continuing the sideways volatile channel and very probably leading into a downside breakout. However, the market resisted that formation and turned upwards instead on good volume. It has also remained up there yesterday and even continued upwards with the Nasdaq100. This is a significant change of character that strongly suggests that we should start preparing for upside opportunities and that is exactly what I am going to do for my Master's Stock Options Picks subscribers. Yes, the wait could be over at last!

Thursday, February 05, 2015

"How January Ends, So Will The Year"

"How January Ends, So Will The Year"

Does anyone still remember this age old trading adage?

January 2015 ended badly... SP-500 ended about 2000 from 2050, the Dow ended about 17,160 from 17,820. Whatever happened to Santa Claus rally? Will 2015 end badly just like how the old adage goes? Well, January 2014 ended really badly and everyone was shouting crisis but 2014 still ended strongly, marking a 9th bullish year since 2009, the strongest bull run since before the tech bubble in 2000! So did January of 2010. So, does this mean that the adage is no longer true?

Well, I would be cautious in completely writing the adage off this year. Even though I do not see a market crash coming as bond yields are still way off market crash levels (but its already the 9th year people... stock market cycle anyone?), I do see that the market is overdue a significant correction the magnitude of what we saw back in 2011in order to digest some of these overbought sentiment. Indeed, the market has been going sideways in a volatile bearish inclined channel since December 2014. The bulls and the bears are still fighting strongly against each other, finding plenty of reasons for either side of the trade.

What do prudent directional traders do during this time?

Wait.

Indeed, with the market going either way, this is certainly not the time for high probability directional trading. This is also why my Master's Stock Options Picks service has been largely on the sidelines since December 2014. This is definitely the time to be patient, wait for a resolution of direction before trading strongly into that direction.

Monday, August 11, 2014

End of This Correction?

So, its been scary in the US market since the start of July and many are expecting this to be that huge correction that has felt somewhat overdue all these while. I felt the same way, especially when this coincides with my prediction of a significant correction in Q4. However, today, I am inclined to call the bottom and that this is nothing more than a minor pullback due to several strong pivotal indicators.

First of all, the S&P500 formed a two days pivot on strong bullish divergence. Most times these two indicators coincided in the past pullbacks and corrections have resulted in an immediate turn around back into the original bull trend. Other times it may linger around that area before finally turning around as well. Either way, it does indicate a high probability bottom within the framework of a minor or intermediate bullish correction.

Secondly, bond yields which have been dropping like a rock across the board the past month has finally halted its decline as investors stop rushing for the safety of bonds. With bond yields this low and the market at this level, investors could finally see some value returning to equities.

Thirdly, the total equities put call ratio that has been completely in the put options zone all month long has finally returned back to the bullish area. Of course, one day of coming back down below par does not mean much on its own but it happening with other supporting evidences such as the above does give it more meaning.

Fourthly, there simply isn't a strong enough reason for the market to get killed yet. By "strong enough reason" I don't mean a strong enough bad news. Quite on the contrary, a strong enough reason would be the economy and the market being so super strong and overheated that it needs to be hammered back into reality. That's how all previous market crashes started. So far, that's not the case yet and there is still plenty left to invest in with the US economy growing steadily and slowly and the Eurozone largely on track as well.

Of course this is extremely early to call any turn arounds and that most analysts would wait for more evidence... this is why they miss out of the best opportunities. I have already started preparing my Master's Stock Options Picks subscribers with bullish positions today... have you started yet?

Thursday, July 10, 2014

US Market Takes Hit from Portugal

US market took a hit today on troubles in a small Portugal bank with the Dow sinking as much as 175 points lower intraday before closing at 16915.

So, how did a small Portugal bank make every investor rush for safety all of a sudden? In fact, it was a truly negative day with the VIX surging in response to the fall, short term bond yields ditching as investors rush back to the safety of bonds and options traders pushing total equities put call ratio above par in a bearish bid in favor of put options trading.

Does a small Portugal bank really have such a big impact on the US market?

Well, I think today's drop was one that was simply looking for a reason, any reason, to happen. The 17,000 points level was a huge psychological resistance level for the Dow and investors were already anticipating a significant correction at this level as the market has been over extended for too long. It only took the most insignificant of reasons for today's drop to happen. In fact, traders have been hedging their positions all month long with the total equities put call ratio lingering around par since the beginning of the month. I too have been anticipating a significant correction by the third quarter of the year with probably a significant bear market by the fourth quarter and I have already been preparing my Master's Stock Options Picks subscribers with some defensive positions in order to hedge against and profit from any unexpected drops.

On the plus side, economic data continues to be great with jobless claims falling more than expected in today's report. This, along with the fact that the Dow and the S&P500 did rebound off their 30MA, tells me that there still are reasons to be bullish in this market and that investors would most likely buy tomorrow on today's weakness. My Master's Stock Options Picks subscribers would then be able to take profit on most of our existing bullish positions in order to prepare for more volatility ahead.


Tuesday, June 17, 2014

Final Leg Up?

The Dow gained 27 points today as investors shrugged off the effects of a higher than expected CPI number and focused on the better sales data and housing data.

A higher than expected inflation data may not necessarily be a bad thing as that is also one of the indicators of a growing economy. The only concern is not for inflation to be too high as to hurt economic growth and the current number is pretty much inline with past inflation data without any significant surprise. This is why it isn't hard for investors to look past it and continue to be bullish. In fact, the VIX dipped while the total equities put call ratio continued to tilt in favor of the bulls.

On the technical side, the Dow bounced smartly off its 30MA with little to doubt about it making yet another new high. This also falls nicely inline with my original expectation of global uncertainty from the 4th quarter onwards with a classic exhilaration bull run just before it all runs dry. In fact, this 5 years bull run from 2009 to 2014 has more or less mirrored the 5 years bull run of 2003 to 2008. History has a way of repeating itself in the stock market so I won't be surprised that this could be the final leg up, so take advantage of it while you can. This, along with the classic business cycle, the cutting of global GDP forecast by the World Bank and the Hindenburg Omen, all points towards the same story.

In fact, this could be the best time to profit from the capital markets just like back in 2007. In fact, we just took another 104% profit off our call options position on CNQ last Friday. Check out how that is done!

Monday, March 31, 2014

End of Q1 2014

The last trading day of Q1 2014 ended well with the Dow gaining 134 points today, ending the first quarter of 2014 on a positive note exactly how I have predicted it at the start of the year. Overall, the Dow gained 1.68% in the first quarter of 2014 or an annualized 6.7%, which is a very healthy bull trend. However, will the US market really gain 6+% by the end of the year? I am skeptical. As I mentioned at the start of the year, I expect the US market to be in a volatile bull trend all throughout the first to third quarter with the fourth quarter looking to be more uncertain. In fact, I am of the opinion that we could see an extremely significant correction by the fourth quarter due to the business cycle and the Hindenburg Omen.

Looking more closely, today's "Bull Day" seems to be a little doubtful as it was slightly overdone on no significantly bullish economic data or news. Bond yields and put call ratio both didn't display the kind of behavior that a truly bullish day in the stock market produces. As such, I would be careful to call this the start of another very strong leg upwards. Doesn't mean it cannot but that this simply isn't the time to jump in long too strongly without further evidence.