Hard to be contrarian?

Posted on April 23, 2012 by Eva Zaleski

Yes, emotionally it comes difficult to most people, including traders to go against the prevailing opinion.

I go back to the 2005 or so when I went to visit Arizona with the intent to invest in another property. Real-estate was hot. Everybody wanted to be “in”.

The problem is we never learn from history. Either because when it repeats it hits a new group of participants or we have short memory or both.

What did I see when my agent took me property shopping? I saw increased density of new housing (huge houses on small lots – were they running short on desert sand?), waiting lists of potential buyers paying above asking price, multiple bids without even seeing a property, creative financing (cheap at first glance).

I am not a real-estate expert now, and was even less in 2005, but what I saw was not logical….

We decided not to invest more at that time. The math was not working for us. For few more years the boom seemed to continue and my feelings of “I missed” the market and investment were strong.

Why I mention it now? Just to keep myself in line and remind that it is just a matter of time in every market: stocks, real-estate, whatever else, that reality will be verified.

What defines the value? For the stock market many investors/traders use various formulas, one common is P/E. AMZN P/E is 138.67, AAPL P/E 16.31, GOOG P/E 18.03

Seriously, could I base my investment decision on such “imprecise” number? How would I know the true detail behind the calculation of earnings? How would anybody predict the future of a company? For me this is as good as guessing.

What is there for me to decide on my trades – the near future that I can access by looking at the charts and current “chemistry” of the markets?

The longer term charts tell me that we still may have some room for the move up. However I do not want to get blinded when the crowd pushes up and a resistance looms ahead.

15 year monthly charts still look OK, with QQQ potentially having much more room but scary at the same time. Please remember QQQ values from 2000 were the same “quality” as housing at the peak!

In the meantime I am just looking for shorter term opportunities and take gains when I have them.

Eva

What if the market breaks out?

Posted on March 31, 2012 by Eva Zaleski

I am taking a week off and writing this blog before the Friday 03-30-2012 close. To prepare for the time away from the market I was cashing out step by step from my active trades. I am going to leave some trades still open to be closed automatically once my targets are reached. Besides that I just have cash. Am I going to miss a rally – maybe? The risk is higher to stay with lots of open trades at this point.

So what am I going to do if during my time off we zoom to the moon in spite of all bearish patterns: rising wedges, megaphones, overbought conditions etc?

Well, I am going to look for pockets of the market that traders hated the most in recent months. If and only if the move out of the major resistance on SPY (around $160) is confirmed, I will enter trades in the ETFs that were definite laggards. My current candidates for fishing: EWZ, XME, EWC, EEM.

Happy trading,

Eva

Next winner: Weekly or Daily

Posted on February 13, 2012 by Eva Zaleski

What should guide the trades this week?

Some ETFs I track show H&S on weekly charts (EEM, EWC, XME). These H&S started when the market took off in July 2009.

See weekly chart of EEM: left shoulder top around $44 in January and April of 2010, head around $50. Now approaching $44 – is that right shoulder or just a stop on the way toward $50 within a triangle?

Daily chart of EEM shows base building with resistance at $44. EEM currently testing SMA(20) and above SMA(200). SMA(20) and SMA(50) pointing up already. MACD positive but topping.

SPY already broke out from a similar base on the daily in January 2012. DIA, IWM, MDY, QQQ look similar or better.

Are ETFs like EEM, EWC, XME going to break down while the market keeps moving up? I doubt it. Either these ETFs should improve while market moves up, or they are flashing a warning sign for all of us.

As for my trading: I stay focused and disciplined, and trade what comes available with good setups (see my blogs from last year).

Eva

Don’t forget to make money

Posted on February 6, 2012 by Eva Zaleski

If you are long this market and happy watching your position(s) grow with the current market, don’t forget to actually make money from it! Greed is good but it may blind a trader by the hopes of infinite move in desired direction.

A trader makes money when a winning trade is closed. The money on paper doesn’t count – it is only a dream about a winning trade. Reality is the cash!

No trend lasts forever and it’s just a matter of time when the change comes.

You feel good and better every day. You keep checking your account daily or even few times a day. You enjoy watching the numbers grow. Joyful feeling pushes some traders to “love” their trades. That is a very dangerous and emotional situation. It would be very difficult to make a logical decision to cash out and “divorce” your favorite trade.

So what happens if a trader can’t cash the winning trade? The market change comes. Surprise! No, that’s nothing – stay the course, etc. Many traders keep saying “it’s just a correction”. They can’t sell and they do not want to sell. The account keeps shrinking, at first just a little bit, then after some bounces, even more.

You do not want to have your winning trades become your looser nightmares.

Now is the time to keep an eye on your winning trades and make sure that you have a very strong exit plan that will not let you hesitate and question it.

The next test for SPY is coming around $137.00 – $139.00

Establish support levels that you do not want to violate and keep moving them up if the markets keeps marching up. When the moment comes you have to act. You are in it to win it! There is always another trade that will make you new money.

Eva

Reverse or breakout?

Posted on January 30, 2012 by Eva Zaleski

Market should be interesting this week. This is the last couple days of January. If SPY closes above $128 on January 31st this would be a significant close on the monthly chart above SMA(10).

The monthly chart still has some room to the upside before next resistance at around $137. The monthly close below $128 would be a warning of a potential reversal!

The green lines are resistance/support levels. You may ask how I came up with two parallel white lines. Look closer at significant volume spikes at levels that might line up.

The lower white line is drawn through points below:

January 2008, March 2008, July 2008, September 2008 – my guess is that this area of significant volume was an important battle – important
May 2010 – rejection of resistance level on high volume – important point
December 2010 – breakout on low volume – to be retested
August 2010 – retest on high volume, followed by couple months of higher volume move up – important

The upper white line uses the points below:

November 2007 failed breakout on high volume – important point
There are no other points I see well defined for the upper line, however I used here a technique of drawing a parallel channel

This month’s candle either stays within that channel or breaks out from it. The volume is low for January so far with just two days left. The MACD is trying to hook up.

Is the weekly chart of any help?

The volume is hesitant at best. SPY is pressing the upper BB and the upper channel line, and it is also at resistance around $134. MACD improved a lot and is above the 0 line.

Daily chart shows SPY in the overbought territory with MACD getting flat. Volume in January has been low.

A pullback and a retest of $126 support wouldn’t be a surprise.

Eva

Waiting for a pullback

Posted on January 23, 2012 by Eva Zaleski

Are you? I admit that I do not wait for it.

It is always a mixed blessing: it would give me new opportunities for new trades; but my open long positions that are still working to complete the trades would pull back too.

With the market moving nicely since the beginning of the year (SPY almost 5%) we got stretched a bit in a happy “zone”. The shorts started lurking but the happy bulls keep buying and forcing shorts to cover. That pushes prices up as the most shorts cover always in a hurry. So even if the only buyers are the covering shorts we keep moving up (that’s one of the reasons).

The fact that the market is overbought and complacent is a warning sign for me. It is not a “stop trading” moment, however.

Imagine that you were traveling and it was very important for you to get to your destination. There were clouds on the horizon. They were getting darker and the wind was picking up. Would you simply decide to stop and wait it out? I wouldn’t. I would rather consider all my options and try to figure out what I needed to continue my journey. Of course if situation became dangerous, I would have stopped.

The current market looks cloudy, with some wind. The dangerous moment would be a day of shorts capitulation with the market up! And with extreme complacency level spike on a high volume. Then definitely I would say to myself “stop trading”. (I do not trade short…)

For now I still have some of my trades on that haven’t completed their runs. The trades that reached their targets I keep cashing along the way. In addition I work to capitalize on very short term setups on hourly charts. Trading from hourly charts is harder recently. When a market is pushing up, up, up, there are less of my favorite setups (see my earlier blogs).

I started working on a new setup, which might work better in an up, up, up market. I do not have solid results yet…

My longer term guiding chart is SPY 10 year monthly chart.

Notice that this month’s candle is well above SMA(10). If we close January above SMA(10) on monthly chart I would consider it quite bullish. With all the resistance above it will hard work for the bulls, though.

Eva

Is Tech a “Safe Haven”?

Posted on December 12, 2011 by Eva Zaleski

European mess, US budget struggle, and more have not impacted all market areas evenly. While we are preoccupied with negative news, tech has been recovering better than SPY.

Is it because we can still get convinced that tech deserves high P/E? Even P/E of 100 doesn’t look scary and we can come up with all wonderful explanations of the phenomenal prospects of the company.

Is it because even in hard times we still need and can afford gadgets and toys?

Is it because of innovation accelerating the demand from other industries for automation?

Whatever it is, the positive trend is still there. QQQ recovered much faster than SPY and is already trading above the high of 2007.

Please review my recent blogs for more charts. They are still trading within latest patterns.

Confidence – what?

Posted on December 5, 2011 by Eva Zaleski

The huge rally last week wasn’t unexpected if we followed the charts. The market was dangerously hitting supports on longer term charts (see my blog from November 21, 2011).

I have no confidence in a market that is being smacked around by socio/political factors. Thus I can’t play bigger if I want to sleep well….

Short term trading from 10 day hourly chart worked again last week, as it usually works in up market including bounces. Now we are trying to push against the upper BB, with BB trying to squeeze. Notice that MACD seems to be forming negative divergence with the price on the hourly chart. However CCI is heading toward “-100”. Typically when CCI hit the extreme negative (around -200 or -300) it pays to watch for a positive divergence between price and MACD. That combined with a potential breakdown from the recent squeeze, if one develops, should create a high probability entry for a short term “buy” trade at low extreme:

The 5 year weekly chart is still contained within the up-trending channel. The last week weakness was magnified by a lower liquidity during the holiday week. Notice that SPY is still within a lower part of that channel. That indicates to me weakness not strength:

UUP is hesitating between a breakdown and a breakout:

And the daily VIX chart is bouncing off of SMA(200).

So any guesses what happens this week? For me it is a tossup and I will stay with my small trades approach.

Eva

Confused about the market?

Posted on November 21, 2011 by Eva Zaleski

Don’t be. Just plow through it. Choose your focus and go with it while keeping your eyes open. Don’t get swayed by talking heads – they are disruptions. Make your realistic trading plans and execute them.

I am not saying that you totally isolate yourself from the news. I am saying you can’t risk your hard earned money to throw on any news or anything that is somebody else’s opinion.

The news was bad recently and the market reacted accordingly. However after all the scare the market is still holding. I am not trying to be a naive bull. All I have to do is to try to stay objective. I have no strong opinion on the market, I just observe and act.

Last week brought for me one good trade from 10 day hourly chart on Thursday with the Friday “cash in”, similar to a previous week setup. You may refer to my blogs from earlier this year to see what I look for when I trade from a 10 day hourly chart.

You want to look beyond 10 day hourly?

The daily chart gives us plenty of patterns. I will just point out two of them.

The symmetrical triangle that was broken down last week:

The small rising channel:

Notice that in both cases I left out the extreme drop in October. I am looking for the prevailing mood in the market – not extremes.

The more traders become optimistic the more “positive” patterns they will find. The opposite is also true. Our brains tend to notice more of what we are looking for. Thus when I look for patterns I need to be aware of the overall mood of traders to see what is possible that they are finding. Currently I think that traders are neutral and waiting for some resolution. The triangle broke down but the channel is still up.

US budget talks are in this week. As much as we would like to blame Europe for all the mischief, we shouldn’t.

The five year weekly chart is showing two channels, one up-trending and one down-trending. They are currently intersecting:

For the resolution on which channel wins – we may need to wait till early next year.

Eva

History in a Chart

Posted on November 14, 2011 by Eva Zaleski

Government Avoids Default
By WBNG News
July 31, 2011 at 9:33 PM EST
Washington, DC (CBS News) After months of negotiations, Democrats and Republican leaders have finally agreed on a way to extend our nation’s debt limit while cutting spending at the same time.

The market decided it wasn’t good.

During few months leading to that day there was a lot of growing tension about the US government default. Especially July 2011 kept the market in high emotions.

The events of the last days of July were the culmination point. Look at TLT 6 months daily chart:

TLT broke out on August 1st , 2011 after 2 months of consolidation. Notice the volume between August 1st and August 10th. Money was pushed into treasuries. The move was so strong that even now, after 3 months the trend is still up.

You can also check that move on the weekly chart of TLT:

Of course the market broke down on August 1st and kept falling on big volume for a week:

Why do I care about the correlation between these events and the market charts? The impact of US government debt situation is huge. The debt problem is not going away any time soon. It was a market shock. Now we are in a calming phase after the storm.

Any negative news will definitely have me extremely careful with my trades!

Eva

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