Stock Market Analysis

Wednesday, October 07, 2015

Is This The Start of a Bull Leg?

Market ended higher in a highly technical session as the market come up against a strong technical resistance level.  The 2000 points level is not only a psychological resistance level (investors and traders tend to be very cautious around whole numbers, thus forming a psychological resistance) but also a technical resistance marking the top of the 2000 / 1875 sideways price channel. What this means is that there are plenty of reasons for traders watching these levels and formations to start taking profit.

This was why the morning session saw plenty of profit taking in expectation of the market turning around back down. However, with the SP-500 trading above the 30MA once again, there are also traders who are betting on this being a double bottom reversal, signified by the double bounce off the 1875 level. This was why the rest of the day turned around to become bullish inclined, closing the market higher.

Like I wrote in yesterday's report for paid subscribers:

"The real question is,is this going to be that market crash that I have predicted all these while as it really looks like a classic double bottom reversal marking the end of yet another intermediate correction. Indeed, I would agree that when taken in isolation without regards to the overall behavior of the market over the past few years, this does look like a textbook  ending of an intermediate correction, no questions about it. In fact, if this happened during the last two years, I would not hesitate to call it the end of an intermediate correction. However, technical analysis cannot be performed without regards to the overall framework of the market. It is exactly like how when making an assessment of a person's character that you cannot arrive at a conclusive picture just by looking at what that person is doing right now but also take into account what that person has done at least over the recent few years."

(Yes, I only publicly post my report every other day at best but paid subscribers get my reports DAILY for LIFE... sign up now! Only $99 for LIFE! And it takes only one winning trade to make that back and MORE, you know it!)

So, was the market REALLY bullish today?

Looking inside the action, we see alot of weakness. We see strong volume, non-committed bond yields movement and an actual move towards put options trading in the total equities put call ratio. Now, how is strong volume a bad thing? Well, contrary to popular belief, strong volume isn't a bullish thing at all. In fact, big volume surges that are not the result of a Quadruple Witching tend to signify reversals (read more about Quadruple Witching ) rather than a sign of continued strength. In fact, we should see a steadily declining volume if this is truly a reversal. Bond yields also barely moved today, definitely not how it behaves in a truly strong day. The most interesting thing is that total equities put call ratio not only not stay in the call options zone, it actually moved into the put options zone today as options traders seem to be preparing for something.

All in all, in a quiet day without heavy economic numbers, today's trading is highly technical in nature and continues to go against the current trend of worsening economic numbers. Within the framework of an intermediate neutral trend, I won't want to be the first to bet on a breakout to upside. In fact, I continue to stand by my forecast of a testing of the 30MA this week before anything conclusive can be made of the market behavior.

Market Crash Timer: ORANGE

For now, the market remains in short term bear trend within an intermediate and primary neutral trend.

Monday, October 05, 2015

Has the Market Found a Bottom?

US market extended its rally today even as economic data continued to turn in worse than expected. This is also the 5th consecutive trading day that the SP-500 has been positive, which is something we hadn't seen since December 2014.

So, has the market actually found a bottom?

I still don't think so. 

Well, I will refer to this 5 days rally as a "Rate Hike Rally" from now onwards. Indeed, the only reason for this rally is the fact that economic data is now bad enough for the Feds to postpone their rate hike plan. What does this do for a sinking economy? Nothing. Soon enough, when this exuberance over the delayed rate hike dissipates, reality will set in... what is reality? Reality is the fact that the US economy, as well as the Chinese economy, are both sinking and that could set off that overdue global economic crisis, an event which myself and many other analysts are expecting to happen in 2016.

On the technical front, this Rate Hike Rally has all the characteristics of a classic dead cat bounce. A rally on weak fundamental reasons and weak internals. Technically, 5 consecutive positive days is also usually when people starts selling. This means that we could and should see the market turn around back down to test the 30MA for support for the rest of the week. This was what happened almost every single time the SP-500 makes 5 consecutive up days. Options traders seemed to be more aware of such behavior as they kept total equities put call ratio in the uncertain zone throughout this rate hike rally rather than trade in favor of call options like they do in real rallies. (Learn more about Put Call Ratio for free)

No market crashes go straight down. There will always be months of struggling up and down in a generally sideways downwards inclined manner (like right now), before a few big drops that academics only recognise as a market crash after it has been done. In fact, this should be where I would strategically spot and enter into good bearish positions for my Master's Stock Options Picks service. (Don't miss out on these profits! Profit with me!)

Market Crash Timer: ORANGE

For now, the US market remains in short term bull trend within an intermediate and primary neutral trend.

Friday, October 02, 2015

Strange Rally...

I got the first half of what happened today correctly but what happened during the second half truly surprised me.

Jobs Report turned in much much worse than expected today, leading to an immediate reaction during the opening hour. It didn't take investors very long to realise that it also mean that the rate hike hammer isn't going to be dropping anytime soon, leading to a rally all through the day. It is the rally that actually surprised me. Apparently investors are far more concerned with the rate hike than the fact that the economy is in trouble today. Which makes next week a very dangerous week for traders and investors who jumped in on this bull trap. The second week of each month is what I call "Digestion Week". A week of no heavyweight economy data and a chance for investors to cool down and seriously think about what the ISM index and Jobs Report released on the first week mean. It won't take investors much to realise that even without the rate hike, the economy is in trouble with economic data going the way it has. The scariest thing is, the Fed can no longer do anything to help the economy. There simply isn't anymore rates to cut and all they can do is sit and watch the economy sink, now, that is scary and I think we would see investors react to that realisation next week.

The technical front looks extremely uncertain for next week as well. The SP-500 looks like it formed a standard double bottom reversal right now but I have my reservations, especially when it is up once again against the 30MA line. The 30MA is a critical resistance/support line and a place where alot of bull traps and dead cat bounces reveal their true nature. This, along with the fact that the market has already been up for 4 consecutive days makes next week an extremely dangerous week where we could see the market take back all these gains.

Market Crash Timer: ORANGE

For now, the market turns a short term bull trend within an intermediate neutral trend and primary neutral trend.

Wednesday, September 30, 2015

Pre-ISM Rally... As usual...

In almost the same fashion as last month, investors priced in the possibility of a better than expected ISM index and Jobs Report today especially after the better than expected ADP employment report, increasing the possibility (however slightly) of a better than expected Jobs Report this Friday.

This is also in line with my expectation that following the big down day two days ago, we should get a few sideways or slightly positive days as investors accumulate into the lower prices. However, what I failed to anticipate was the pricing in effect ahead of the heavy weight numbers, leading to a much stronger positive day than the just “slightly positive” that I expected.  The good thing is, inline with my expectation, I have already ordered my Master's Stock Options Picks subscribers to take a 61.2% profit on our put options positions in ESV yesterday before we get caught in a dead cat bounce like this one. See how we did it!

So, what does a day like this typically mean? 

Well, it typically means that even if the heavyweight numbers do turn out to be better than expected, the positive effects would have be extremely limited. In fact, if the numbers turned out to be only very slightly better or just in line with expectations, the market could actually start to sell off and take back the priced in good news, which was what we saw over the past few months. In fact, due to good numbers increasing the possibilities of a rate hike, whatever rally that results from a far better than expected release would also be short lived. In fact, the only thing I think will turn this bear trend back into a bullish trend is for the rate hike to actually happen and then gradually allow the positive effects of such a fiscal policy to start showing in the economic data… this is a process that could take months after the rate hike actually happens and this bear market runs its course. Until then, with the rate hike hammer hanging over everyones heads and economic conditions generally weaker than ideal, this market remains one in which betting to downside continues to be the smart move. 

The internals today did not convince me that it is a truly positive day today either. Bond yields barely moved and total equities dived in favor of call options (learn about what Call Options are for free)... these are usually indications that put the odds in favor of today being a fakeout rather than a reversal. In fact, I would use this as an opportunity to get into more puts. (Don't know what puts to buy in this condition and when? Join my Master's Stock Options Picks service now!) 

Market Crash Timer: ORANGE

For now, the US market turns a short term neutral trend within an intermediate bear trend and primary neutral trend.

Monday, September 28, 2015

Market Takes A Beating... As Expected...

US market tanked today on a slew of worse than expected economic data exactly how I have expected last week. This was what I said to paid subscribers last Friday...

"If such an impressive GDP number failed to turn things around... what can? If not, how bearish can the way ahead be? That's the thing that is breaking the stock market now... every bad economic data depresses the market and every good economic data increases the probability of a rate hike and end up depressing the stock market as well. Under such circumstances, how could the market be reliably bullish?"

(Yes, I only publicly post my report every other day at best but paid subscribers get my reports DAILY for LIFE... sign up now! Only $99 for LIFE! And it takes only one winning trade to make that back and MORE, you know it!)

and exactly like I have predicted last week, the market went generally sideways for a few days before the bear trend resumed and tanked today. Like I said last week again, I hope nobody was caught in the few intraday bull traps last week. (My Master's Stock Options Picks subscribers on the other hand profited greatly today because of the remaining put options positions that we have prepositioned early last week! Join us now!).

As in every classic oversold day, bond yields tanked across the board and total equities put call ratio surged in favor of put options. Whenever that happens, especially within the framework of this being the 5th consecutive down day so far, I would be very careful about trying to be newly bearish because this is usually when the market "find value" and turn bullish a little bit. In fact, this is when I would be taking profit on a few profitable put options positions. This week is also going to be really volatile due to the two heavyweight economic number that we get every first week of the month; ISM index and the Jobs Report. Like I have said all week, I suspect the bullish impact of these numbers even if they turned out really well could be really limited due to how generally economic data has been less than ideal lately as well as how every strong number really does nothing but increase that rate hike fear. Either way, its not a good thing for the market. This is when I would be really careful about putting on new positions, whether bearish or bullish.

Market Crash Timer: ORANGE

For now, the market remains in short term and intermediate term bear trend within a primary neutral trend. 

Thursday, September 24, 2015

Uncertainty Ahead of GDP...

What started out as a very negative day turned out to be not all that bad as the market recovered lost ground by the end of the day with the SP-500 closing just 0.34% lower. In fact, today's market outcome was largely expected. This was what I wrote to paid subscribers yesterday:

"I suspect the number only led to the market closing negatively in what would have been a couple of
generally sideways days anyways"

Today was just one of those couple of generally sideways days that I have anticipated following the big down day two days ago. (Yes, I only publicly post my report every other day at best but paid subscribers get my reports DAILY for LIFE... sign up now! Only $99 for LIFE! And it takes only one winning trade to make that back and MORE, you know it!)

It was interesting to see how negative investors were off the bat today even though early morning economic data did turn in generally better than expected! Investors only started buying after the New Home Sales data beat consensus and showed that the general uptrend in new home sales remains intact. Indeed, housing continues to be the only good news in the economy right now but even that is showing signs of deterioration. This is why none of these housing data was able to turn the tide around and today didn't even end as a positive day. Why? Because the third estimate of second quarter GDP will be coming up tomorrow, on Friday, and that can be a real market mover. As such, investors were largely uncertain today, resulting in a classic hammer candlestick. Now, the significance of a hammer candlestick pointing this way and occurring at this level is completely from the significance of that hammer candlestick that I have reported on over the past few reports, which started this new leg downwards. A hammer candlestick at this level usually says "Uncertainty". It means investors are waiting for something to make a final decision. This final decision could be upwards or downwards from here (Which is why I am calling a profit taking on some of the put options positions that I have pre-positioned my Master's Stock Options Picks subscribers with since last week). This is why such a hammer candlestick isn't necessarily a reversal signal. In fact, it has been quite a reliable continuation signal as well.

Bond yields were down in response to the bearish sentiment but total equities put call ratio remained largely in the uncertain zone for a second day as traders reflect that uncertain sentiment that things can go either way from here.

However, by "can go either way", I don't mean that this bear trend could end right here, not at all. By being able to go either way, I mean even if it goes upwards, it would only be for a few days before the overall trend take over once again. It takes alot more than just one or two numbers to reverse a general intermediate bear trend. So, make sure you are not trapped in the ensuing bull trap if tomorrow's GDP number turned out fantastic.

Market Crash Timer: ORANGE

For now, the market remains in short term and intermediate bear trend within a primary bull trend.

Tuesday, September 22, 2015

Evening Star CONFIRMED!

Yes, even candlestick formations as strong as an evening star formed around the 30MA within the framework of an intermediate bear trend needs to be confirmed before one can be truly committed to a trade (Ok, even so, you won't be 100% committed because there simply isn't anything that's 100% in the market. So, how do you deal with such risk? This is why professionals are not called "traders" but "risk managers". We adjust the amount of fund commitment according to the assessed risk. Don't know how much of your fund to use under each risk profile? Join my Master's Stock Options Picks service and leave that to us!).

So, what does it mean for a candlestick formation to be "confirmed"?

A formation is "confirmed" when the ensuing days of trading actually move in the direction pointed by the formation. That is the line that determines if the formation/signal is a real one which will trigger a continuation of a trend or a trend reversal. So, it can actually be dangerous jumping straight into a signal without confirmation no matter how strong the signal looks.

With today's down day, the evening star created two days ago is now confirmed, which means this is the high probability start of a more significant downwards movement. Now, significant in my world means any move that takes the market in one direction 5% or more, regardless of how many days it takes to do it. Even if its a huge one day move.

Supporting today's move was more disappointing economic data in the retail sales and manufacturing sectors as both Redbook and Richmond Fed turned in worse than expected. Housing prices took an about turn but that didn't convince investors that the housing sector is getting better either due to the recent numbers. Bond yields dropped across the board as investors returned to the safety of bonds and total equities put call ratio persisted in the bearish region.

If you have been following my every report as a subscriber (Yes, I only publicly post my report every other day at best but paid subscribers get my reports DAILY for LIFE... sign up now! Only $99 for LIFE! And it takes only one winning trade to make that back and MORE, you know it!), you would know that I hadn't qualified any of the days recently, no matter positive or negative days, as truly bullish or bearish due to conflicting internals. Today, however, is a truly bearish day where generally everyone thought and behaved bearish, no conflicts. Such a strong follow up only tells me that there are more to come, which is why I have already prepositioned my Master's Stock Options Picks subscribers with bearish position over the past few days. (Yes, in most cases, being PRE-POSITIONED makes the difference between whether you profit from the same move or are you too late! Join my Master's Stock Options Picks service and stop getting in only when its too late!)

I am more convinced than ever that this is the start of the 2016 market crash which myself and many other experts have been predicting for a long time. I am just one step away from dialing my market crash timer all the way up to RED.

Market Crash Timer: ORANGE

 For now, the market turns a short term bear trend within an intermediate bear trend and primary neutral trend.