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Monday, July 12, 2010

Earnings Season Kick Off

Another low volume day, in a chart pattern that is looking less and less like the start of a new bull market, but yet another dead cat bounce. There is virtually nothing driving the market right now, it is pbasically waiting for earnings season to start, and the market is basically telling us nothing about what it expects. We are now above the dreaded bear market pivot at 1040, but still below the 200dma, and probably due for another test of the descending trend line, but with this kind of volume, that could take a while.

The Dow industrials have bounced a little higher, but the picture looks much the same. Interestingly, the price relative line has gone flat, which may actually be a postive. The 200dema was tested today, and the 50 and 200 are about to cross. this is going to be a very tough zone to get through, and I would be surprised if we didn;t get a sharp pullback from here.

The Nasdaq tested it's 200dema as well, has filled the gap from last month, and has basically nothing technically to push it higher. If you have been following the news on AAPL, and the engineering gaff they made with the latest iPhone, that isn't going to help.

The Russell 2000 never got off the mat today, and was the first to test, and get rejected by, the 200dema. That is not a good omen for the rest of the market.

The correction began with a rise in the dollar (or more specifically, the collapse of the euro), but the correlation is no longer there. The dollar is, however, in an orderly pullback, which looks an awfully lot like a pullback before another move up.

The market really doesn't look like it has bottomed. Another pullback with a retest of the previous low will go a long way toward restoring confidence in the market, and another follow through day in August will have better odds at succeeding. But we will have to wait and see if that happens.

I will have the new highs update shortly.


Anonymous said...

Hey David. Im trying to get better at getting in on good pivots. I was banking on a continuation from the breakdown of the neckline on the spy on the weekly. Boy waiting around can be frustrating. Anyway, Im short the xle, xlb, spy, amazon, and long the tlt. I think your analysis of dollar is spot on. This is why Im also long the tlt. If you are right of going all the way back to the downtrendline then im going to stop out tomorrow.

Im thinking of doing a reversing back to the mean system, this has been most success for me. I borrowed part of it from a larry connors system I learned. I use the 5dma and a 2 period of RSI. Its nothing fancy but it seems to work.
Also, what do you make of alcoa earnings. Do you think them beating by 1 cent means anything. I wonder if this is a good kick off to earnings season.
Eddie B.

David said...

Hi Eddie,

Working on what a good pivot is may be the most difficult part of reading charts, but I think if you can get it right you can really catch some stocks at the right time. A good way to do it is to look at either a long term daily or weekly chart (free charts only go 3 years, but that's probably good enough), and look to see if there are a couple of points where stocks tend to turn. A lot of times, you see gaps when those points are broken. Those are usually pretty reliable pivots, and if you can catch a stock as it's going through that pivot, you can usually catch a pretty good gain (either long or short). It takes some practice, though. I've been wanting to do more long term chart analysis on weekends, but lately haven't had much time.

I usually look at a 2 period RSI when making short term trades, I have found it to be a pretty reliable indicator. I don't normally use moving averages other than the 50 to time entries, but most big investors do, so it helps to watch those too.

Alcoa is up 3% after hours, so it looks like the market likes it so far. I think the market has already priced in slowing earnings because last years numbers are going to be harder to beat than they have been the last few quarters, but that doesn't really matter, it is the market's reaction that I'll be watching. Companies can report good numbers and still get crushed, or crappy numbers and rally like crazy.

Sounds like you are doing pretty well. this has been a pretty frustrating market and the news has been pretty weird. I hope your community isn't hit too hard by the State's soon to be bankruptcy, mine might be.

Good to hear from you as always.

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