Wednesday, January 23, 2008

Time for relief rally in US and around the world..

DJIA Monthly Chart

DJIA Weekly Chart

DJIA Daily Chart

DJIA Hourly Chart

As noted in a previous post, the BLS report on employment triggered a strong recession-related bearish sentiment which sent DJIA through the 12.700 support towards 12.000 next support, probing just below latter around 11.700 where long term support is found (see charts above): 2000 highs and EMA50 on the monthly chart, summer 2006 highs and SMA200 on the weekly chart, second day tested low on daily and hourly charts.

Oversold indicators readings and above mentioned long term support may trigger a relief rally back towards 12.700 resistance area (previous support) where also lies the 61.8% Fibonacci retracement level of the latest drop. This relief rally will also benefit markets around the world including the Romanian stock market.

Sunday, January 06, 2008

Indicii romanesti BET, BET-C si BET-FI

Indicele BET a testat o zona de rezistenta puternica in jurul valorii de 9.700 unde se intalneste ultima retragere Fibonacci (61.8%) a ultimei curse descendente (intre 10.500 si 8.500 puncte) si linia de trend ascendent (care a cedat la inceputul lunii noiembrie) transformata in rezistenta. Daca zona de rezistenta mentionata nu va fi strapunsa hotarat, indicele BET se poate intoarce catre SMA200 si EMA50 si apoi chiar spre urmatoarele suporturi 9.000 si 8.500. In caz contrar, indicele are drum deschis catre 10.000 si apoi 10.500 puncte.

Indicele BET-C a reusit sa strapunga linia de tren descendent si sa se inalte peste EMA50 fiind insa oprit de ultima retragere Fibonacci (61.8%) a cursei descendente dintre 7.262 si 5.856. Noi teste esuate de a strapunge rezistenta Fibonacci pot genera o retragere spre SMA200 si linia de downtrend devenita suport. In caz contrar 7.000 si 7.200 pot deveni urmatoarele tinte ale trendului ascendent.

BET-FI a strapuns linia de trend descendent si s-a oprit la retragerea Fibonacci de 50% a cursei descendente de la maximul istoric de la 96.452 pana la 64.452. Indicele testeaza linia de trend descendent sparta si transformata in suport, SMA200 si EMA50 precum si suportul puternic din jurul lui 75.000. Daca zona de suport mentionata cedeaza, indicele poate intra pe trend descendent spre 70.000 si 65.000 de puncte. In caz contrar urmatoarele rezistente se gasesc la 80.000 si 85.000 unde se gaseste ultima retragere Fibonacci (61.8%) a cursei descendente de care am amintit.

Important de mentionat ca indicatorii nu semnaleaza trend iar oscilatorul Stochastic se apropie de zone de supravanzare in cazul BET-FI si corecteaza zone de supracumparare in cazul BET si BET-C. Perioada urmatoare este critica, indicii aflandu-se la suporturi (BET-FI) si rezistente (BET si BET-C) importante. Strapungerea hotarata a acestora poate declansa un trend in perioada urmatoare, in caz contrar indicii vor ramane in range.

11 Rules For Better Trading In 2008

1. Be data centric in your approach. Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.

2. Be disciplined. The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.

3. Be flexible. At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.

4. Always question the prevailing dogma. The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.

5. Understand your market edge. My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies.

6. Money management. Money management. Money management. It is so important that it is worth saying three times. There are so few factors you can control in the markets, but this is one of them. Learn to exploit it.

7. Time frame. Know the time frame you are operating on. Don’t let a trade turn into an investment and don’t trade yourself out of an investment.

8. Confidence and conviction. Believe in your strategies and bet wisely but with conviction. There is nothing more frustrating than having a good strategy work as you expect, yet at the end of the day, you have very little winnings to show for your efforts.

9. Persistence. It takes persistence to operate in the markets. Success doesn’t come easy, and if it does, then I would be careful. Even the best strategies come with losses, and they always seem to come when you get the nerve to make the big bet. Stay with your plan. If you have done your home work, the winning trades will follow.

10. Passion. In the end, trading has to be about your bottom line, but you have to love what you do and no amount of money is worth it if you aren’t passionate about the process. No matter how much success you enjoy, in the markets you can never stop learning.

11. Take care of yourself. No amount of money is worth it if your health is failing or you have managed to alienate yourself from family and friends in the process.

The TechnicalTake by Guy M. Lerner

Goldilocks economy seems to be over and the Bear family is heading back home!

The Bureau of Labor Statistics report on employment came out with bad news on Friday. The job creation slowed down somehow more than expected (18.000 jobs versus 70.000 jobs expected) though these numbers are sometimes fundamentally revised the next month and are not so much reliable in my opinion despite the huge importance markets give them. Nevertheless, unemployment rose to 5%, up from 4.4% last February, and 4.7% last month. "Rises of that magnitude are rare (see picture above); it's 1.6 standard deviations from the mean, and at the 92nd percentile of monthly changes since 1950. They're even rarer outside recessions; of the 55 rises of 0.3 point or more, just 18 have been in expansions, and most of those were either close to recessions or in jobless recoveries. In fact, the last time we saw a 0.3 point rise was in January 2001, two months before the official cycle peak. More than half the rise in unemployment came from permanent job losers." (Philippa Dunne from The Liscio Report).
The awful BLS report coupled with the dip in ISM manufacturing index below 50 (though this number is just a conventional line in the sand, it needs to stay longer and lower below 50 to give strong signal of recession) give the markets the sentiment recession is on its way in the US (and the three bears - the Bear market - from Grimm Brothers tale are heading back home to disturb Goldilocks sleep and eat their porridge putting an end to the "just right" economy) while the FED prepares another rate cut.

Nevertheless, economists and international analysts predict a recovery starting the second half of 2008. The timing is just right for the November American presidential elections that can provide good support to the stock market throughout this year.

Looking at the carts we see DJIA Index approaching key support around 12.700 points in a rather trendless price action (as indicated by ADX readings). The failure of this strong support gives scope for next support around 12.000 points and may start building a downward bearish channel for the next several months. If 12.700 points support holds (backed by oversold Stochastic readings), we may see a bounce towards the SMA200 and EMA50 in a range driven price action also supported by the end of the month most probable at least 0.25% FED rate cut. If bearish sentiment is strenghend, any bounce will probably stop short of the high of the previous bounce.

John Mauldin - Thoughts from the Frontline
Barry Ritholtz - The Big Picture