Looking Ahead to 2010...

In Tuesday's post, I gave the following short term projection...

Here's the updated chart...

Not too shabby, eh? I know, I know... even a broken clock is right twice a day! :)

Looking ahead to next week, I'll offer up this...

I can envision two scenarios unfolding next week as we kick off 2010 with expected downside price action. In both scenarios, the 5 day moving average will begin to roll over and act as resistance to any rally attempts. Much depends on how the market opens Monday morning, but either scenario leads to a continued move lower.

Green - If 1115 provides a bounce, I expect a declining 5dma to reject prices and send them below 1115 to test trendline support. This scenario would allow me an opportunity to unload longs and possibly add to or establish new bearish positions at the 5dma test. I actually prefer this scenario given the way my portfolio is currently positioned.

Red - If the selling continues Monday morning, I'd expect the trendline to provide support and perhaps a retest of 1115 from the underside. Depending on how ugly the action is, if that retest coincides with a meeting of the declining 5 dma, we'd have an excellent entry to add to short positions in the expectation of trendline failure. I'm thinking way ahead here, but that 1086 level would then be my next target for downside price action.

Remember, I expect this correction to eventually be another buying opportunity. I would keep some cash on the sidelines ready to be put to work for when the long opportunity arrives and it may not take long. The cycles suggest mid to late January, but I wouldn't bet the house on that. It's simply a guide.

Of note, I'm thinking out loud here and providing my plan for how I intend to trade and manage my portfolio into next week. Any and all of these variables can change, and likely will, but without a plan there's no idea of when to attack, when to re-evaluate, and when to know you're flat out wrong. I never expect prices to take the exact path as I predict, but when they do, I get rewarded nicely. This method served me very well in 2009 and I only wish I had posted trades on MarketGuru earlier in the year. Instead, I'll close the last third of the year with nearly 20% gains and look forward to starting 2010 with a clean slate and a green January!

I'll have much more over the weekend, including a new Pattern Watch post. In the meantime, I want to wish you all a very Happy and Healthy New Year!!

Brief Update

As we described last night, prices on the S&P came down and tested the rising 5 day moving average today. As expected, when the average is rising, the first touch usually provides a bounce and that's exactly what we saw late in the session...

Turning to the channel on the SPY, prices didn't quite make it down to the 75% line, but it does appear the intermediate term decline I've been waiting on is likely underway (despite the session being flat!)...

With a little help from some geopolitical chatter, USO held strong today. Oil still looks like a great short opportunity here with an excellent risk/reward ratio. (Disclaimer: I own puts & SCO)...


Here's another idea I'm contemplating. As I become increasingly more defensive with every uptick, I've added a few for-profit education stocks to my watchlist for potential long entries. Some of these stocks have been beaten down and now appear to be finding bottoms with solid volume coming in. Others, like EDU, are in uptrends and look like good dip buying candidates at trendline support. Here are the three on my radar...

EDU - Trendline Support

APOL - Rounded Bottom

COCO is in a nasty downtrend, but strong upside volume is coming in and this would be the spot to get long based on my dip buying strategy. Prices were able to pop back above the 5dma (blue highlighted circle) and I could easily manage my risk here on the test (green highlighted circle)...


I know if I'm going to take a shot on any of the above education stocks, I'd want to do it on strength throughout the sector, not on weakness. Speaking of weakness, I'd like to see a little in NVDA and have added it to my list of retest candidates from last night's post...

Click Any Chart To Enlarge

In summary, I'm still expecting the pullback as described in last night's post. Until proven otherwise, I'll continue to position the portfolio for the expected dip. When it finally arrives (and it will!), I plan to use that opportunity to get long a few of the names we've highlighted over the last several posts and ring the register profitably on the inverse ETFs. If this plan is proven wrong, I'll listen to the market and, as always, be ready to react accordingly!

The Long & Short of It

As we discussed in last night's post, the S&P futures found resistance at the 75% line. For a change, prices closed at the lows of the day...

It appears prices are ready to roll lower from the upper channel line on the shorter term charts. We also pointed this out last night and here's the updated view...

We'll take this one day at a time, but I'm expecting a test of the 5 day moving average tomorrow and a possible short lived bounce. I'm also looking for that test to eventually fail and a move lower to test the breakout level around 1114. Should things really get ugly into the end of the year, there's trend line support around 1107. I doubt we get that low before 2010, but one never knows. Here's a chart projecting the price action I'm looking for...


Regular readers may remember the following chart from this post. The dollar did pull back as I described, but now looks ready to take the next leg higher. If that's in fact the case, we'll find out if the market has truly decoupled from the dollar and can remain strong in the face of a rising greenback...

Here's the shorter term chart of the UUP and I'll be looking to get long on a pop back above the 5dma...


Check my call on USO in that same post...

I've mentioned in the comments section that a healthy pullback would offer some long opportunities on a few extended leaders. I've highlighted the easy to manage, low risk entry areas in the charts below. Besides HITK, which I've mentioned several times, I'm also watching these...

BUCY - Breakout Retest

FIRE - Breakout Retest


RHT - Apex Retest

I've also added a couple of short opportunities to my watchlist...

FLS - Complex Double Top

EBIX - Head & Shoulders
(Note - Splits 3:1 on 1/5)
Click Any Chart To Enlarge

Channeling A Top

When it becomes difficult to find points of reference for a reversal in a trending market, I often turn to channels for guidance. Now that the 50% retracement on the S&P at 1121 has been breached, I'll be paying closer attention to the following channel on the /ES dating back to July. I've tweaked this channel slightly from when it was last posted to include more data and you can see that prices are now challenging the 75% line...

While the above chart shows more room for upside, the channels on the shorter time periods are bumping up against resistance. We'll use the SPY, QQQQ, and DIA to demonstrate...

SPY

QQQQ

DIA

While prices could certainly pop out of these channels to the upside and move higher, I'm betting on some weakness from this level and that's how the portfolio is currently positioned. However, if this market decides to rip higher from here, a handful of potential longs could be very useful. Here are a few more potential breakouts to add to the list...

AGCO - Inverse Head & Shoulders as Continuation Pattern

BIDU - Ascending Triangle

BWY - Cup & Handle (Thin)

SFY - Channel

Click Any Chart To Enlarge

Pattern Watch

As I scrolled through charts over the holiday weekend, I was struck by the fact that many top fundamental and technically healthy stocks are stretched too far from support for purchase. This leads me to believe the market is in desperate need for a pullback and you now have both bulls and bears looking for a dip. Obviously for very different reasons, but none the less, a pullback is likely to get both groups excited again.

The following list is what I'll be watching early in the week. The portfolio is currently positioned to profit from a pullback, but I'm not afraid to add long exposure, if necessary. First, I'm still watching for a little more of a dip in HITK...

INT - Ascending Triangle

VMW - Symmetrical Triangle

OII - Inverse Head and Shoulders as Continuation Pattern


NUS - Ascending Triangle

The stocks above represent patterns found within some of the market's top fundamental companies. The following are the best of the rest and not amongst the fundamental leaders...

BLL - Cup and Handle

CVC - Cup and Handle

MAR - Cup and Handle

NKE - Channel

PH - Symmetrical Triangle

PM - Symmetrical Triangle

SNY - Ascending Triangle

GGB - Imminent Breakout

STLD - Cup and Handle

The next two are weekly charts.

MIL - Ascending Triangle

SYMC - Cup and Handle

Click Any Chart To Enlarge

Twas The Knight Before Xmas

Twas the night before Christmas, when all through the internet
Not a bear was found blogging, for they all had been spent.
The market had rallied for a fifth straight day,
and hopes of a decline were fading away.

The bulls were nestled all snug in their beds,
While visions of a green tape danced in their heads.
With Goldman, their robots, and a bag full of tricks,
The markets will soar, they must, it's fixed!

When over on Pattern Profits there arose such a chatter,
I jumped on my laptop to see what was the matter.
Onto my Mac, I barely could wait
I opened the page to see our market's fate.

A chart on the cusp of dropping below
Gave the lustre of new life to this bull run show.
When, what to my wondering eyes should appear,
But a miniature Cooper, filled with the bears.

With a little old driver, crammed in so tight
I knew in a moment it must be Tim Knight.
More rabid than wolves, his followers they came.
They whistled and shouted that shorting is their game.

Down AAPL! Down GOOG! Down BIDU and RIMM!
Short AMZN and Visa! Short every last one of them!
From the top of the left, to the bottom of the right.
Short them all now! Do it! Tonight!

But some thought they knew better, this market shall fly.
What are those guys smoking, they've got to be high?
Now you must give Tim credit, the followers he drew
Like Mole and Atilla and the rest of the crew.

And then, in a moment, I heard from the roof
The prancing and dancing of someone being a goof.
As I drew in my head and was turning around
Down from the chimney, Bernanke came down.

He was laughing and cackling and acting a fool.
I heard a bear yell, "What you've done isn't cool!"
But a bundle of money Ben had flung on his back
"Relax... What the banks stole from you, I'm here to give back!"

His eyes how they twinkled, they were full of delight.
"What do you know... looks like we got something right!"
The smile on his face was drawn up like a bow
And the beard on his chin was white as the snow.

The bears all around, they clenched their teeth tight.
They encircled the Fed head, ready to fight.
But Bernanke was quick, back up the chimney he'd go.
He'd left the bears standing with nothing to show.

Ben was back on the roof in the blink of an eye.
And I cringed when I saw the bears almost cry.
He not only escaped, but took the money too.
And said "I'll give this to Goldman, for all that they do!"

The bears spoke not a word, but went crazy insane.
They already knew who was driving this train.
While giving the finger as Bernanke took off,
I heard Tim Knight say "now I'm really pissed off!"

Tim wasn't done yet, to his team he gave a whistle.
And again they all gathered... ain't that a pistol!
He said "Let us keep shorting, again and again.
We'll have our day soon in 2010!"


This is dedicated to the die hard bears who have had a very difficult year. I hope it brings a smile to a few faces and may you be on the right side in 2010! Enjoy the holidays!

Halfway Home (For the Holidays)

The S&P 500 has now made a full 50% fib retracement and I've positioned the portfolio for, at the very least, a brief dip at this level...

Of course, the Nasdaq is currently steering the ship and has coasted right through the 62% retracement...

The DOW continues to hug the 50% retracement...

As always, should the markets decide to continue to push ever higher, I've got a few more charts to add to the watchlist...

HITK - Breakout Retest (Closer to $25+ is Golden)

HMIN - Trendline & 50 dma Support


JST - Ascending Triangle

NTY - Ascending Triangle

Click Any Chart To Enlarge