TCM Notes : 6/30/09

• End of the quarter trades will be settled today, and then we can be on with the business of the 3rd Quarter. Rotation has occurred towards health care and utilities. It's showing in the XLV and XLU. These laggards could be the leaders for the quarter (and they have golden crosses in their near futures.) My current thinking goes : "What carried us here will hold us, but what lagged will soon lead." Telecoms may very well be an ideal play as yields have become attractive again along with the chance for significant price appreciation ie: T. The major indices continue to chop within their ranges offering up the likely hood of an upper range test....think 950 again for SP500. This correction may very well be one of time rather than price as we chop in a range for months. However, that was also the thinking last summer right before the world almost got sucked into a financial black hole. As I just got done telling someone. I'm seeing a lot of bullish charts, but the macro back drop is still terrible. It usually comes out in the charts first though.
• XLF closed above it's 200sma Monday. UYG closing in on 4 is putting many options participants in the July 4 calls in the money.
• OCN has seen some volume recently and has been pushing on it's 52wk highs. I don't really want to see it break out before the earnings are released, and that won't be until August. So this one could fall back into the flag formation for a bit longer. This "pinned" action could shake out some short term money, but the long term money will be soaking up these shares waiting for the earnings report. A major run into the news will let me know the news has been leaked and to be out before the report.
• MSFT should be bought on meaningful corrections going forward from here. $30 target prices coming out of the wood works Monday. INTC is setting up for a move into the 18s as well.

TCM Notes : 6/26/09

• 2% moves on the indices accompanied with volume caught many a trader flat footed today. Many say it was end of the quarter window dressing taking place due to the trades settling 3 days after Thursday. Traders in the SP500 pit claimed program buying was gunning for the buy stops all day (hat tip Najarians.) Regardless of the exact cause everyone except the Dow reclaimed both their 50 and 200dma. The Dow took back it's 50 but left the 200dma for another session. So the range of 880 to 950s still seems to be with us. I'll need to see the 9dma retake the 20dma back to the upside to really stamp my hooves on the ground. Although the SP500's move Thursday took back the 9,20,50, and 200 day moving averages. Pretty impressive. So far the 23.6% retracement is providing major support.
• OCN saw volume pick up and a push back to it's highs. When they report this thing is going to move in excess of 10%. With the chop in the market it could still fall back to it's 50dma, but the risk of being out of the stock is far outweighing the risk of being in at the moment. OCN is in an uptrend that is now catching the fancy of several fund managers. This could persist another 12 months potentially resulting in a double.
• I'm hesitant on the DBA call after spotting a very bearish pattern that somehow I missed. The sessions from 6/1 and 6/2 are what is known as a "gap island reversal." This is when you gap up away from the market, and either in the same session or the next one gap back down. It leaves these days out there as an island unto themselves. Just know the market usually moves the opposite direction with authority. Further confirmation of this came on high volume gap down on 6/15. So the recent trade off the hammer low may not hold even though it came at a strong moving average support level. The softs need to prove themselves to me ie: Corn, Soybeans, Wheat, and Sugar.
• IPOs have seen impressive debuts this year. Moreover they've enjoyed continued gains after their first day of trading. CYOU, SWI, MJN, OPEN, and RST have been powerful. New comers DGW, and CPC came public Thursday and offer China exposure. Two that I would like to look at further are GOV, and CYS.
• I had a level of 56.70 on SDS I was looking at for entry Thursday. It was a trend line from it's most recent hammer low. That trend line got smashed eliminating the trade. I wouldn't be surprised though if we get a bit of a pullback today near the close. If I knew for certain I'd be at the beach!

FOMC statement

http://www.federalreserve.gov/newsevents/press/monetary/20090624a.htm

Release Date: June 24, 2009
For immediate release
Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

TCM Notes : 6/24/09

• Tuesday offered up a Doji candle on the SPY closing beneath the 9, 20, 50, and 200dmas. The markets have been correcting for 7 sessions now. Last Wednesday's doji offered a tradable bounce the following sessions, but nothing more as we are firmly lower from those levels. The FOMC's statement comes out at 1:15pm ct and then things will become real interesting again. My gut feeling is the crowding of the "reflation" trade will unwind further today as the Fed shoots down inflation fears and zeros in on deflation which still looms. This should be enough to cause managers to sell the broad indices in an effort to stave off losses on their single stock positions; as most of these guys have quickly gotten net long the reflation trade again. It's crowded and when group think changes volatility picks up. 1:15pm ct we shall see.
• DBA and DAG bounced off their 86dmas. DBA reclaimed it 200sma. As with most things I'm looking at these are beneath their short term averages and they could begin causing overhead resistance.
• Some of the refiners have caught my eye for a potential tradable bounce. VLO has the most interest around it recently. FTO, and WNR are pretty liquid and offer wide volatility envelopes on their charts.
• OCN continues to stay contained within the bull flag it's forming. I need to find out when they report their earnings, but rest assured there is going to be a huge move that day. Looking for a 1.50 move up from these levels in the short term and a double in the next 12 months. At the moment this stock is still only being accumulated by hedge funds. When the larger mutual funds start getting involved then the volume should expand and the offer should lift quickly. This is a very nicely controlled uptrend.
• The oil shorts along with broad sector shorts pulled in some today as "stuff" saw a stronger session on dollar weakness. We are at the cross roads in most everything. A further correction is still warranted it seems even though we are starting to show oversold levels. These conditions can persist for dizzying amounts of time, so going against their trend is not advised here.
• Almost forgot. We had the golden cross on the SP500. It was worthy of a whimper. I was not a buyer of it. Another study was done that shows a slight edge in buying the golden cross only when the Dow Jones Transportation Index has done the same. To which it still has not.

TCM Notes : 6/23/09

• Well, with a golden cross on the horizon things are getting tricky. Today's close beneath the 50 and 200dma, and the violation and close beneath the 23.6% retracement further push the moving averages into rolling over. The 9 has crossed down through the 20dma. The golden cross is .15 away. There was a golden cross in DAG several sessions ago, but that hasn't kept it from trading lower. It caught support on it's 86 and 150dmas and formed what looked to be a hammer on first blush. However, further study reveals that the real body was too big. Same applies to DBA, but it's candle looks better. MOO still looks to have a few more dollars to shed.
• Looking to get long SDS on a 9/20dma cross over. Swing trade signal on the 60 minute chart was triggered Monday midday.
• Energy shorts are moving sharply now. Positive technical crossovers and swing signals were triggered recently. ERY, DUG, and SCO get the job done. Heard several traders playing it using DTO. I prefer my picks as far as "bang for the buck" is concerned.

TCM Notes : 6/19/09

• Quadruple Witching today. Volume should pick up. The final few minutes of Thursday's session found me with an order ticket open on SDS with a bid right at the 20dma (55.88.) I hesitated for a number of reasons. The main one being I think tomorrow could offer the "gap n' crap" trade which could offer a better entry. So I'll wait for the open. Another reason is the SPY has not had the 9dma cross down through the 20dma yet. Not to mention it's 200dma is offering support underneath along with a 23.6% retracement line. On top of that there is a golden cross looming on the chart that could materialize in 2-3 more sessions. I've shared an article that covers a strategy of buying the golden cross. I'll be looking to buy the very moment this condition is triggered regardless of the noise that day in the market. I could see this happening next week as the 104 billion in Treasury auctions coupled with a FOMC meeting provides ample catalysts for a sharp move.
• The charts on DUG and ERY are almost identical the last 6 sessions. And as one would expect DIG and ERX are exhibiting the same similarities. XLE of course looks like the ultra longs, so it will be the proxy as far as picking which juiced up pairs to deploy.
• I'm highly skeptical of the moves seen in the healthcare names : XLV, CVH, UNH, AET, CAH, WLP, HUM, etc. Some floor traders were quoted in the media as saying their fund clients think it's just a trade. Well it's working as this sector is the top performer this week so far. Looking back Obama's speech Monday was the capitulation event for the trade. And the big moves came today as the House looks like they will scrap the 1T bill they were thinking about marking up. 1T would only benefit 16m people which is not acceptable. So the HMOs get a hall pass until around July 4th when more hair brained legislation will be kicked around again.
• XLU still fighting resistance at it's 200dma, but the action was a little stronger at that level into the close. UPW gets you levered up 2x, but the liquidity in this one is dismal as are the spreads. The big money is focused on XLU and it's components.
• Signed up for some Twitter applications. Not sure how useful they will be, but we'll know soon enough. StockTwits is embeded on the right.

TCM Notes : 6/17/09

• Tuesday gave us another day of distribution across the indices bringing the the total to 3 for the Dow, SP500, and Nasdaq. Closes at or beneath the 20dma lend more credence to the fact that we are in the anticipated correction. Isn't it funny how when we get what we want we don't want it anymore? Such is life. Embrace the opportunity, but do it wisely. Depending on how the moving average structures play out will determine whether we see a 38% retracement, or a 50% retracement. What I'm looking for now to get short into the pullback is failure to reclaim the 9 and 20dma back to the upside. So if we bounce back above the 20dma today and then fail at the 9dma and settle beneath it my conviction levels for a pullback into the 850 SP500 level will increase. A crossover of the 9dma through the 20dma to the downside will also increase the odds of a 50% retracement, and potentially alter the short term trend in such a manner as to embolden the bears once again.
• UYG has violated it's trend line from the March lows and has closed beneath it for the past several sessions. It also violated the 23.6% Fib line again today and closed beneath it. Next level to watch is the 38.2% fib level. Although a 9dma downward crossover of the 20dma would make buying here even riskier.
• Things are getting tricky again and that's a good thing. Why? Because confusion is a harbinger of opportunities to come. So get your watch list ready and identify your buy levels. We may just get a second chance at this thing yet.

The Correction Has Started

• SPY, DIA, XLF, XLE, XLI, XLB, XLK (held and closed above barely) , and a host of other leading sectors closed below their 20dma today. So draw your Fibonacci levels from the low to most recent high, and then you'll have the areas of support clearly defined. I'm looking to play this actively so I'm looking at longs in some of the inverse funds ie: SDS. I closed ERY way too soon. It could still run at it's 50dma if oil can roll over here. Looking to these for profits, but most importantly for when they start to roll over. If that happens while the long only counterparts are nearing key support levels then I'll know it's time to get net long again. The shooting star formations in many of these were the warning signs that the correction was near.
• MSFT threw up a shooting star today as everyone starts to recommend it now. My IT guy won't stop raving about Bing and project NATAL. And then another data point from an article read about data centers makes me like it even more. Live gaming could pick up dramatically if Natal is a success. It could pull back to the 200dma / 50dma area for support.
• More detail in tomorrow's notes

TCM Notes : 6/16/09

• Monday gave us distribution across the indices. IBD has the count at 2 for the Dow, SP500, and Nasdaq. While it occurred in lower than average volume it was still higher than Friday's. They have moved their market outlook to uptrend under pressure. The 20dma came in to provide support today, but could potentially fail and give way to longer duration moving averages and Fibonacci levels. 894 and 851 may be the levels ultimately tested in the SP500 if the market continues to roll over. Obama's speech Wednesday has the markets spooked, so we may very well see some continuation today.
• OCN near it's 50dma may offer a nice entry point before the next earnings report. The stock was featured in IBD's daily stock analysis last week. Mutual fund ownership is at 60 funds up from 38 a year ago.
• XLU saw 30k Jan 2010 30 calls bought for $1. UPW is another way to capture this play with leverage.
• ERY ended up hitting my target even though I was wrong about the election. King Dollar flexed up some on Monday doing the heavy lifting for the short oil trade. I may have to revisit this trade as it's heavily weighted in integrated producers and service companies. DUG showed continuation as well.

TCM Notes : 6/12/09

• Sorry for the lack of notes this past week. By the time I got my thoughts sorted out I was too tired to type. That said we finished up solid for the week, although many feel that we are rolling over. Still holding above the 9dma on the charts so longs are still the way to play this market. Wednesday did give us a distribution day, so the count is 3 for the Dow and SP500, and 1 for the Nasdaq.
• Based upon overcrowding in the energy trade, and the pending Iranian election I got long some ERY in the after hours of Thursday's session at 16.89. I got the gap up I was expecting this morning, but oil couldn't fall more than 1.06. So I closed the position short of my 18.51 price target. However, I did manage to sell .12 from the highs at 17.76. So it was a nice counter trend scalp. And it was my first dance with one of those triple beta products. Still no word on who won the Iranian election, but if Ahmadinejad loses oil is going to come off at least 10% imho. Again sorry for the "after the fact" post, but I wanted to document the thought process involved in this successful trade. My stop was at 16.06, and while it didn't hit the target the plan was factored on legitimate risk/reward parameters.

TCM Notes : 6/10/09

• While doji closes signal indecision in the markets they can often lend an important hand in consolidating fast moves. Even with this going on, indices are still firmly above their 200dma bogey. With the 9 and 20dmas making bullish crossovers and offering support levels within themselves along with major retracement zones. The SP500 is set inside a range of 920 to 950 at the moment. The 50dma was a key resistance level for much of the bear move, but I want you to take note of how it finally decelerated, flattened out, and then turned upward. I'm expecting a similar fate for the 200dma in the SP500. Mid July to early August should see a test of the 200dma at much lower levels than here, and that will be the launching pad for further gains along with confirmation of something else. That something else has a ring in it's nose and huge pointy horns on it's head. Let's not get carried away though. We've still got some headwinds that could blow us off course.
• Added more UYG in after hours Tuesday at 4.27 which is today's pivot. The pivots have tightened up as volatility is being sucked out of the market. TARP paybacks have been expected and the actual day a transfer of funds is made may trigger an actual move. At the moment short term target is 5.60 with the 200dma being the obvious upside target. The 200dma continues to come down rapidly in this one too. Causing short term averages to stage bullish cross overs as we continue to claw our way back up to "normal."
• The VIX closing at 28.27 Tuesday puts that index back to pre-Lehman levels. Some will argue this is the type of complacency that will lead to another major sell off. The sudden interest in VIX futures by people whom have never traded it to me signaled a top back at 80. Those that have sold VIX from then to the present are true students of exploiting the opportunities that froth brings. And yes, FEAR was pretty damn frothy for a long enough period.
• A 3.85% yield on the 10yr is having an effect on 30yr mortgage rates. Most recently quoted at 5.25%. Historically cheap, but with more foreclosures still to come pressuring prices it could serve to derail recovery in housing. There has already been a slowing down in applications.
• Speculation is becoming more prevalent in the energy futures products. I would say that those pushing these prices would be wise to not get too carried away, because if it's you that derails the rally then the attention on the Hill will be focused on you. One big bet being made by many is on natural gas via UNG. Much like USO this one is prone to carrying cost erosion as the market remains in contango. Bulls are saying the oil/gas ratio is historically 6:1. It's currently at 17:1 leading many to believe natty gas is materially undervalued. That may very well be, but one dynamic is different this time around. An ocean of natty gas has been tapped with the advent of horizontal drilling. And this new technology may very well prove to make the traditional oil/gas pricing ratio less reliable going forward. And then there is this...........I could be wrong. Perhaps, but in the mean time UNG remains locked in a downtrend. I'm actually surprised there's not a double beta product for natty gas.

TCM Notes : 6/8/09

• Keep an eye on the Treasury auctions this week. Over 100b hitting the market this week, and if an auction goes bad money could come out of equities. Pre-market futures are calling for a lower open, but we've seen that several Mondays in a row play out to be the ultimate buying opportunity. While there is defined overhead resistance likewise there is defined support underneath. Those areas will be the buy zones until they are violated with bearish moving average crossovers. And that's not the case just yet. So we shall see how Mr. Market feels this week when the bell dings.

TCM Notes : 6/5/09

• The Dow closed above it's 200sma Thursday. And that rounds out the lot of major averages getting to, and above this bogey. Now the trick will be if they can maintain above this level. There's an article in the shared items section that talks about how fast the 200sma is still falling. The way I see it you will have a bull cradle, a golden cross, and whatever other bullish crossovers are eminent as the shorter duration averages cross up though the 200. These types of crossovers generally provide sharp upward moves. The type of moves that will have those under invested cursing, and those whom are short cursing even louder. Overbought conditions will become more pressing at that point, and a confluence of a whole bunch of other macroeconomic factors may assist in leveling off the markets trajectory at that point. Ah, but the 200sma should be beneath us providing adequate support then. And the potential for still worse economic news could persist, but a safer investing environment may still very well be locked in place. I guess we'll just have to continue trading it long until it bucks us off.
• Added more UYG at 3.96 in Wednesday's session. It had a close above it's 150sma Thursday by .02. 4.24 was the 150sma for the 6/4 session.
• This INTC bid for WIND is driving some to place bets in the August 12.50 calls. There's always the chance of a higher bid, so the thinking on the trading desks goes. Oh how they love to speculate!

TCM Notes : 6/3/09

• Indices holding onto gains and adding a little bit more to the tally. The real risk for fund managers now is not being in with enough size. All the other themes persist from Treasuries to commodities to currencies, and back to the beaten down consumer.
• OCN / HTS / XHB / and possibly FAF are my candidates for a housing recovery. John Paulson has launched a fund to bet on a recovery in real estate, and since he took it from the highs to the lows. I'm expecting him to do the same from the lows to the highs again. We'll see about it. Out of all of these OCN should outperform as they help restructure all those delinquent mortgages. And they did say last quarter that Q3 would be a blow out.
• Those that are calling this a bear market rally in equities and a reflation trade for commodities I think have it backwards. I think the move in commodities could be the bear market bounce and equities could further benefit from that as their input costs stay low and margins stabilize. Commodities are starting to get a dot com feel to them in this trader's eyes. Peak oil theories and Malthusian theories permeate through the investment mosaic in order to create a feel of scarcity in the minds of large and small investors alike. You know who's got the real answers about such things? That's right, Mr. Market does. And according to his extensive track record he tells me that equities beat commodities hands down over the course of time. A Paul Tudor Jones interview crystallized this for me the other day...although he's still a believer of Peak Oil.

"Is the price of oil high for fundamental reasons, or are hedge fund managers and Wall Street driving it up?
It’s a very bullish supply-and-demand situation, and the peak oil theory is probably correct. But the run-up in prices is now bringing in an enormous amount of speculative, nontraditional capital such as pension funds and university endowments — principally through index products. Commodities have been the worst-performing asset class behind stocks, bonds and real estate for the past 200 years, but Wall Street doesn’t highlight that long history when selling commodity index instruments today. Instead, it shows a chart of the bull market of the past 12 years to rationalize why some pensioner should be long cattle futures in the derivatives markets as part of a basket. I am sure they were using similar logic about tulips three centuries ago. Oil is a huge mania, and it’s going to end badly. We’ve seen it play out hundreds of times over the centuries, and this is no different. It’s just the nature of a rip-roaring bull market. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic. "

• The rest of that interview can be viewed here : http://www.iimagazine.com/Article.aspx?ArticleID=1964189 And let me tell you it was a game changer for me. Especially the part about being hampered by the need to understand and rationalize a move. Let the moving averages and price action be your explanation. The fundamentals always come out in the charts. So instead of trying to rationalize why we should make new lows and futilely try to pick a top. Let a pullback into a major moving average or retracement level be your launching point to get long and capture some of this up move. And let those same averages serve you as a stop loss if we do roll over again and resume to the abyss. Keep it simple.

TCM Notes : 6/2/09

• SP500 reclaimed the 200sma Monday. The Dow is getting there. Looking for the 8500 level to potentially become support. We'll see about that though. Volume proponents point to lower levels from Friday, but you know what? Mr. Market doesn't care. The bulk of the moving averages are beneath us and providing support. Fund managers are chasing performance now and momentum is starting to develop. And the AAII survey still shows too many bears. So the dips are to be bought, and those talking about scary sounding economic probabilities are to be ignored. It was more than priced in on the 6 month overshoot to the downside. When I hear some yokel say, "Credit - D - fault - swap" in an ignorant but know it all manner...after the fact mind you.....I shake my head now and say to myself "this IS a bull market now!"
• UYG poked it's head up over the 150sma today only to settle a few pennies beneath. XLF is closing in on it's 200sma.
• The levels of doubt and fear still in the retail investor's mind are going to ill serve them yet again. If history is any guide they will not fully engage back in the market until we are back at the highs. Knowing this fact fund managers are taking stock at the ask aggressively and putting it away in order to sell it back to these nice folks at a higher price. Such is life.
• Now everything still isn't roses, but my point is if you are waiting for that moment you will be too late. And value will have passed you by. Test the waters and use a trailing stop. If the downtrend reasserts itself you'll be back on the sidelines with cash for the next opportunity.