DJIA 7/7/09

An update to the last post. The outlook has not changed.

5mo daily chart-fibo. The mar09-jun09 advance. To increase the likelihood that this is the first move up of a major reversal after hitting the bottom at 6469, then this current retreat that commenced after the 8877 peak in early jun09 needs to find support somewhere between the 8000 and 7400 range. Anything below that strengthens the case for a continuation of the downtrend.

4mo daily chart-HnS. A head and shoulders pattern was completed today that confirms the resumption of the downtrend after the early jun09 peak of 8877. The pattern suggests a price objective of around 7700.

4mo daily chart-ichimoku clouds. the dow is inside the kumo cloud-a range or layer of potential support levels. In this situation, the index is considered to be in an unbiased state and the trader is best to wait and see in which direction it will break away from the cloud.

1yr daily chart-inverse HnS. On a bigger time frame, the index appears to be in the process of developing an inverse head and shoulders pattern. For this to come to a fruition, the dow should find support at or near 7500 then reverse and consequently break above 9000.

Outlook. For now, the technical view is that this new downturn is part and continuation of the prevailing bigger downtrend. However, the (a) MACD divergence and (b) the seemingly developing inverse head and shoulders in the 1yr chart suggest a potential for a major reversal. To increase the likelihood of a bullish reversal, the index needs to find support between 7400 and 8000. The price objectives of the (1) 5mo fibonacci study, (2) the 4mo head and shoulders, (3) the 1yr inverse head and shoulders pattern, and (4) the 3mo ichimoku cloud chart collectively sustain this possibility. If the index does find support along these levels, then the chances of a reversal being underway is upgraded from possible to likely. A fall below the 7400 level rules out the likelihood of the Mar09 to Jun09 as the first move of a reversal and opens the way to a possible retest of the Mar09 low of 6469.

DJIA 6/22/09 - THE MAR TO JUN RALLY: A REVERSAL?

1. It sounds like an old worn out record, but optimists always ask the question: is the mar09 to jun09 rally (a) the first move up of a new uptrend? To be perfectly clear, let's state the obvious alternative: or is it (b) a correction of the existing downtrend?

For those impatient enough to demand a definitive answer "right here right now", then i'll have to say sorry, there's no way of knowing, for now. But for those patient enough to wait a little longer for price charts to develop, there are markers that technicians look for to clue them in to likely outcomes.

2. The Mar09 to Jun 09 2408 pts advance (6469-8877) represents a 92% retracement of the Dec08 to Mar09 downtrend of 2619pts (9088-6469). A retracement of this magnitude exceeding 70% shows that the momentum of the existing trend has weakened considerably and usually precedes a potential change in trend. A change in trend is (a) a reversal in direction of the current trend, or (b) a prolonged sideways movement.

3. By (a) registering a lower high on 6/19/09, and (b) breaking below the 6/17/09 support - thereby ensuring a new lower low - the index has commenced a fresh short term downtrend.

4. if we are looking for signs or clues to answer the question in (1) we can look to the following:

(a) if this new retreat finds strong support between the range of 7300 and 8000 then it becomes "possible" that the last advance is indeed the first upleg of a new downtrend. A subsequent upmove above 9000 with convincing volume will raise the soundness of the speculative new uptrend from "possible" to "likely".

(b) if the retreat finds significant support at or near the 6500 level, then it is likely that the index could be in for a consolidation. If this happens, We will have to look for future signals to clue us in on which direction the index will break.

(c) lastly, if this retreat eventually finds its way below the major support of 6500, then it will be safe to say that the downtrend continues to remain valid.

Somebody mentioned that "a market bottom is not an event, it is a process". It will be helpful to remember this to avoid getting ahead of ourselves.

REVISIT OF TRADING PLAN ISSUED 4/9/09

On 4/9/09 I posted the following trading plan [POTENTIAL TRADES THIS COMING WEEK]. Let's revisit them and see how they panned out. Of the 6 setups, 4 buy triggers initiated trades (BDO, BPI, JFC, and MBT) while the remaining 2 did not (FGEN and PLTL). For an average holding period of 32 days, the 4 trades averaged a return of 14.9% before deducting commissions and other charges.

Trading plan posted on 4/9/09.

STOCK|TARGET|STOP|ENTRY
BDO | 37.00 | 24.00 | 28.50
BPI | 43.00 | 33.50 | 37.00
FGEN | 28.75 | 21.50 | 24.00
JFC | 52.50 | 43.50 | 46.50
MBT | 37.50 | 25.00 | 29.50
PLTL | 10.60 | 8.00 | 8.90

Theoretical trading outcome for the period 4/9/09 until 5/29/09.

BDO
- Buy trigger of 28.5 hit on 4/16/09
- Protective stop of 24.0 untouched
- Hits a high of 34.5 on 5/7/09
- Potential profit of 6.0 per share or 21.1% return
- Holding period of 25 days

BPI
- Buy trigger of 37 hit on 4/13/09
- Protective stop of 33.5 untouched
- Hits a high of 47.5 on 5/18/09
- Potential profit of 10.5 per share or 28.4% return
- Holding period of 35 days

FGEN
- Buy trigger of 24 untouched
- No trade initiated

JFC
- Buy trigger of 46.5 hit on 4/17/09
- Protective stop of 43.5 untouched
- Hits a high of 48.5 on 5/27/09
- Potential profit of 2.0 per share or 4.3% return
- Holding period of 40 days

MBT
- Buy trigger of 29.5 hit on 4/13/09
- Protective stop of 25 untouched
- Hits a high of 36.5 on 5/11/09
- Potential profit of 7.0 per share or 23.7% return
- Holding period of 38 days

PLTL
- Buy trigger of 8.9 untouched
- No trade initiated

SELF ASSESSMENT FOR MAY 2009

So far, May 2009 proved to be the most profitable trading month since the beginning of the year. Of a total 22 trades in May, 16 are winners and 6 are losers. The average holding period is 7 days with 6 overnight trades and 1 intraday trade. The longest holding period is 25 days - one of the losing trades. The average loss per trade of the 6 losing trades is 0.5% of total equity with a standard deviation of 0.23%. This is way better than the self imposed loss limit per trade of 1.75% of total equity. I attribute this favorable risk variance to the practice of appropriate trade sizing, scaled entries and trading discipline. I am at peace with myself regarding my entries and the execution of protective stops. But I still have a lot of work to do on my profit taking exits - which is not to say that last month's profitable trades are to sneer at: an average 25% return on trading value per trade with a 32% standard deviation that includes 3 outlyers of 75.7%, 82.1% and 98.3% profits after deducting commissions and other charges. I continue to trade cautiously while expecting a potentially significant reversal after an impressive market run up that started Mar 2009. I hope you guys found the month of May rewarding as I did.

POTENTIAL TRADES FOR 6/1 TO 6/5

I am looking at the following stocks for potential trades this coming week.

ac - break of prior resistance
ali - break of prior resistance
fli - bounce (0.88 - 0.75 - 0.69)
fph - bullish odr - look for a potential bounce
gmap - doji - potential near term reversal or pattern formation
mbt - triangle - look for a potential break out
meg - pennant - look for a potential break out
mpi - break out of a pennant
pax - bounce (4.40 - 2.70 - 2.40)
pip - retreat - wait for an odr
px - flag - look for a potential break out
rlc - bounce (8.00 - 7.50 - 7.00)
vll - bounce (2.04 - 1.78 - 1.66)

DJIA 5/26/09

TRENDS
* PRIMARY downtrend | Res (Prior) 9000 (MA180) 8600 | Sup 6500
* INTERMEDIATE uptrend | Res 9000 | Sup (Prior) 6500 (MA60) 7800
* SHORT TERM consolidation | Res (Prior/BB upper) 8600 | Sup (Prior) 8200 (BB center) 8300

INDICATORS
* MAs | Price >MA20; >MA60; < but nearing MA180 | Slope MA20(+); MA60(+); MA180(-)
* MACD | trending up but weakening | Positive divergence (Oct08 to Mar09)
* Volume | decreasing volume consistent with sideways movement in May

ANALYSIS
* BEARISH: For now, odds remain in favor of the primary down trend continuing. Selling pressure may be reasonably expected to appear at or near 9000 after which a fresh downleg commences that could take the Dow below 6500.
* BULLISH: The MACD positive divergence and a developing inverse head and shoulders keep the hopes alive for the low probability end of the primary downtrend that could lead to a reversal or a prolonged sideways trend. There are at least 3 scenarios under which this could occur:
1. The inverse head and shoulders pattern comes to fruition and the index breaks upward of the MA180 and the 9000 level with a possible TP of 10500 thereabouts.
2. The index corrects under selling pressure that appears at or near resistance levels and finds new support without retesting 6500 thereby forming a provisional uptrend with one higher low.
3. The index corrects and retests the 6500 support forming a double bottom from which to launch a reversal or sideways trend.

CONCLUSION
1. A reversal from this point breaking above the MA180 and 9000 level is possible but unlikely.
2. A failure to breach resistance levels and a new downleg that will continue the primary downtrend is likely but we need to watch out
(a) if the index finds support above 6500, or
(b) if the index breaches 6500 or forms a double bottom.

APRIL AND MAY 2009

The past 2 months have been very rewarding for those who were able to participate in the short and intermediate uptrend. I was not able to keep up with the regular market updates having been preoccupied with trading the active local issues. After all, i am a trader first and a blogger second. Quite a number of short term flag/pennant patterns, bounces, and break of resistance trades proved to be fruitful.

POTENTIAL TRADES THIS COMING WEEK

Here are a few stocks which appear to be setting up nicely for next week. The ff trading plan offers a reward to risk ratio of around 2:1. The stops indicated below should serve to limit potential losses in case the setups disappoint. This means that if I enter a position, I have pre-accepted a potential pre-determined amount of loss in case the trade does not go in my favor. If the setups bear fruit, take profits sensibly. We are in the midst of a bear market so this rally can turnaround anytime. Consider your risk tolerance level when sizing your trades. Good luck.

STOCK|TARGET|STOP|ENTRY

BDO | 37.00 | 24.00 | 28.50
BPI | 43.00 | 33.50 | 37.00
FGEN | 28.75 | 21.50 | 24.00
JFC | 52.50 | 43.50 | 46.50
MBT | 37.50 | 25.00 | 29.50
PLTL | 10.60 | 8.00 | 8.90

DJIA 3/30/09 SHORT TERM REVERSAL

TRENDLINES
*PRIMARY DOWN TRENDLINE
*INTERMEDIATE DOWN TRENDLINE | BROKEN TRENDLINE
*SHORT TERM UP TRENDLINE | BROKEN TRENDLINE

MOVING AVERAGES
*PRIMARY | MA180 DECLINING
*INTERMEDIATE | MA60 DECLINING
*SHORT TERM | MA15 ASCENDING

PRIOR SUPPORT/RESISTANCE
*PRIMARY | LOWER HIGH + LOWER LOW
*INTERMEDIATE | LOWER HIGH + LOWER LOW
*SHORT TERM | HIGHER LOW + HIGHER HIGH

INDICATORS AND VOLUME
*MACD | UPTREND | LOSING STEAM
*STOCHASTIC | UPTREND | OVERBOUGHT
*BOLLINGER BAND | CORRECTING TO CENTERLINE
*VOLUME | DECLINING SINCE MID MARCH

POTENTIAL PRICE TARGETS
*PERCENTAGE RETRACEMENT | 7000-7400
*BB CENTERLINE | 7240
*PRIOR SUPPORT | 6470
*MEASURED MOVE | 5900

ANALYSIS
Last week we had a sense that a correction is bound to appear after a 3week run up. The index has now closed lower for 2 consecutive days and we view this as a start of a near term reversal corroborated by weaking momentum indicators. How far do we think this new downleg will go? A few price targets can be gleaned depending on one's market outlook. If you are one of those excited by the positive MACD divergence (see previous post) that showed itself and is now predisposed to looking at the March low as the potential 'bottom' of this bear market , then you should be expecting a bounce between 7000-7400. If this happens, many will find it encouraging, but for technicians, this remains a long shot. Due to the declining bigger trends, i am constrained to view this near term reversal as a new short term downtrend that is a resumption of a new leg down in the intermediate trend all happening within the context of a primary bear market. Using the measured move method this fresh move down could reach the vicinity of 5900 sometime late April or May. A break below 6469 is a significant confirmation. Use intervening rallies to SELL.

Note: If GM and Chrysler are thrown into bankruptcy/liquidation soon the resulting negative financial and economic repercussions could provide a cathartic shock to the market that might potentially lead the way to an eventual recovery.

DJIA 3/24/09 - A 2 WEEK RALLY

TRENDS
(1) PRIMARY DOWNTREND | Prior Support 6469 | Prior Resistance 9088
(2) INTERMEDIATE DOWNTREND | Prior Support 6469 | Prior Resistance 8405
(3) SHORT TERM UPTREND |Prior Support 6469 | Prior Resistance 8405

MARKET REVIEW
(1) On 2/23/09 [DJIA 2/23/09 LAST LINE OF DEFENSE 2002 LOW] I said that the momentum of the Dow's decline "... could potentially make 6800 achievable." The index continued its decline and hit a new low of 6469 in early March 09.

(2) On 2/27/09 [DJIA 2/27/09] I also said that " It is not unreasonable to expect a correction to happen next week." which was the 1st week of March. On the 2nd week of March, the Dow started a 2 week rally that saw the index climb over 1300 pts. My timing was off by a week.

(3) It is worthwhile to note that a positive divergence presents itself early March 09 when the MACD exhibits a higher low just as the index marks a multiyear low. Consider this as an alert for a possible buliish reversal. Let the index play out and look for potential confirmation in case a reversal does unfold.

MARKET SENTIMENT
The primary and intermediate downtrends continue to rule. Until the chart presents evidence to the contrary, the current 2wk short term uptrend is merely considered an upleg correction of the declining intermediate trend. This rally is approaching potential resistance at around 8000 in the form of (a) a prior support during the minor consolidation from Jan to Feb 09, and (b) a 50% retracement of the 2500 move down from Jan to Mar 09. Keep an eye out for short term reversal signals that clues us in on the resumption of the downtrend. SELL ON RALLIES.

DJIA 3/2/09 - DOW SINKS BELOW 7000

The index closes at 6763 just under our price objective of 6800 (See DJIA 2/23/09 LAST LINE OF DEFENSE 2002 LOW). I thought buying interest would appear at or near 7000 but the market just drove past that level without looking back. Since we are at multi decade lows, I will stop using historical levels for purposes of anticipating potential future support. It is generally accepted that the farther away in time prior support areas are situated, they diminish in technical significance. For now, it is sufficient to say that it is reasonable to expect the market to decline and correct within the confines of the down trending price channel in the chart posted DJIA 2/27/09.

DJIA 2/27/09

TECHNICAL ANALYSIS
Two (2) significant support levels were penetrated this week, the 2007 low of 7449 and the 2002 low of 7177. The breach of the Nov07 prior support assures us of a future lower low in the primary trend and confirms that for now, the Dow is trending down in all time frames. It is not unreasonable to expect some buying interest to appear at 7000 thereabouts. Round numbers usually serve as a form of psychological support to traders. A close look at the Dow's cycle duration raises the possibility of a correction happening around next week. Being at the lower extreme of the price channel supports this contingency of a near term correction. The stochastic indicator is at oversold levels and the MACD continues to deteriorate.

MARKET OUTLOOK
For now, the index is trending down in all time frames and could be expected to continue to oscillate within the declining price channel. It is not unreasonable to expect a correction to happen next week. SELL on rallies.