Current Market Analysis - Trendmagic

[trendmagic]

Current Market Outlook 08/02/2006:

As per our previous updates, the broad markets continue to look higher. The choppy action, or indecision, displayed by the tape action is something we expect. There will be disbelief in this rally and it will travel further than most expect. Lets baseline here...we are specifically speaking on the DOW JONES industrials. We think we are in a bear market but we know that bear markets have sharp bounces that burn short sellers. We feel that this is what are in the process of doing. Ultimately, within the next couple of weeks, we expect the markets to top out and continue their downward price movement in full force. But patience is key.

Keep an eye on 11240 for the DOW JONES, 2100 area for the NASDAQ and 1280 for the SPX. These areas will be key to take out for the bullish case to persist. The NYSE has already broken out and this is a bullish sign giving us a clue that the rest will follow. The 2100 area on Nasdaq will be key....this could get the laggard index some steam and juice this market.

Gold equities looks strong today. Our stocks: MNG, CDE, and TRE were up nicely. We will continue to monitor the health of this market and present our analysis within a couple day. An important development may be occuring here.

 

[trendmagic]

Current Market Outlook 08/03/2006:

DOW JONES BOTTOM SPOTTER: LONG

Our words from yesterday:

"Keep an eye on 11240 for the DOW JONES, 2100 area for the NASDAQ and 1280 for the SPX. These areas will be key to take out for the bullish case to persist. The NYSE has already broken out and this is a bullish sign giving us a clue that the rest will follow. The 2100 area on Nasdaq will be key....this could get the laggard index some steam and juice this market."

Our forecast for todays action was right on target. These key levels halted the indices today. The markets traded for hours at these levels and finally gave into near the close. However, we closed only slightly off the highs. We continue to think that these levels will be taken out and the market will continue to surprise. Nothing has change in our stance.

We especially liked the fact that the NASDAQ took leadership today. That is encouraging.

In reviewing our watchlist, KLAC looked good today, nearing the 43 area. We may initiate a long position on a breakout above these levels. We will need to see volume on the move above it.

 

[trendmagic]

Current Market Outlook 08/06/2006:

DOW JONES BOTTOM SPOTTER: LONG

On Friday, the stock market blasted off on the opening with a gap up on all the major indices. The DOW was up 100pts within 10 minutes of trading, while the Nasdaq was up approx. 25 pts. The employment numbers proved to the be catalyst. The jobless rate increases from 4.6% to 4.8%. The market interpreted this positively, anticipating that the FED would refrain from raising rates yet again.

We interpreted the action in another way. We had mentioned in last weeks update that the 11240 on the DOW and the 2100 level on the Nasdaq would be extemely important areas to help us gauge how strong this market is. Friday's opening gap was a short squeeze that began in the futures market and carried over to the cash markets in the morning. Both these areas were gapped over strongly. Short sellers provide fuel to a fire when it gets going. This time was no different. Stops were run when these levels were broken.

However, whenever we see a news driven gap, we tend to become defensive. These usually get filled and this time was no different. We saw the markets reverse and give back all the gains from the 1st hour of trading and subsequently go lower into the close before a minor rally put the indices near unchanged for the day. We were positioned in the DOW Jones August 108 call options. We took the position off as we have 2 weeks remaining and we want to remain defensive with our options positions.

What was really done with that gap? Technically speaking, when resistance levels are taken out(whether or not they are held on the close), it generally indicates that the resistance is weakening. Our indicators continue to remain on a buy signal and we see no signs of the rally giving way, at least just yet. We anticipate a flat to slightly negative day on Monday in anticipation of the FED and feel that this may give us the fuel to finish the rally that started from the July bottom. We are waiting for our sell signal to trigger to go short and purchase put options on the DOW Jones. Remember, Tuesday will be a volatile day.

We currently hold 3 gold and silver components; CDE, TRE, and MNG. Lets take a look at the XAU(Philadelphia Silver and Gold mining sector). XAU is pretty clear below. 155 will be an important area for this index to get through for us to continue to remain bullish. This level represents an area where we had a massive gap down and also the peak of the left shoulder.

Position Updates:
Sold DJVHD at 5.15 for a gain of 47%

 

[trendmagic]

Current Market Outlook 08/07/2006: courtesy of our website

DOW JONES BOTTOM SPOTTER: LONG

The markets treaded water pretty much all day today as we expected in our update from last night. The market is in a standstill waiting for the Federal reserves policy decision tomorrow. We should see some euphoria from that decision tomorrow. We continue to expect that volatility to resolve to the upside. Todays selling was accompanied by extremely light volume. The nasdaq did a couple shares shy of 1.5b. The NYSE did 1.33b shares, the lightest in the last 6 weeks. Firms, institutions, and investors alike are all waiting for that all important interest rate decision. They will take sides tomorrow.

Our indicators are still point higher and we feel a top is not here yet. As we stated in the past, when double bottoms are formed on this indicator, we see rallies in the range of 10% or more. From low to high, we've done 6.2% thus far on the DOW Jones. If our indicator is crosses to the downside, we will quickly change our stance. We expect this market to rally into the latter part of August and then ultimately drop like a rock into the October bottom. In a couple days, I will produce for you some analysis on the October bottom on how significant and reliable it actually is.

Stay tuned for the action tomorrow!

 

[trendmagic]

Current Market Outlook 08/14/2006: courtesy of our website

DOW JONES BOTTOM SPOTTER: LONG

The markets rallied today for a good part of the morning today on the cease fire agreements struck in the middle east. This rally was euphoric on the open and quickly faded after mid-day. The trading environment remains choppy with no leadership on either side. News driven gaps are rarely left open on the short term, especially in negatively trending markets. We expect this time to be no different. The nasdaq has a high probability of filling its morning gap at 2059 tomorrow. Volume was lackluster and there was no conviction on either side, however, we are somewhat encouraged that the technology stocks are starting to assume leadership in this market.

On a more intermediate term basis, the S&P 500, Dow Jones, and NYSE have all maintained a very shallow retracement of the rally off the July lows. This bodes well for the near term. We are keeping a close eye on the SP500 for clues as to the near term direction of this market. The S&P has traced out an inverted head and shoulders pattern with a neckline at the 1265 level which we are currently resting on. A successful test of 1265 would indicate a target of around the 1325 to 1335 area on this market. We will trace this market out day by day to ascertain an appropriate area to get out of our longs and get short.

This market is having trouble breaking the 1280 level. As you can see, previous swing lows(in this case, the April 17 bottom) act as resistance once broken. The market upthrusted through this level and shot up to the 1295 level squeezing alot of shorts out of their positions. A lot of traders are stuck holding long positions initiated up near this level and therefore, you can expect this area to be tested on the near term. This will be important to help gauge the duration of this current uptrend. The question remains if the market can close above 1295 or fail there. We will be watching closely.

Intermediate Term Prognosis:

We continue to feel that a rally may take us into the end of the month or near it before we see the bigger hands step in and provide downside pressure onto this market. As we have stated in the past, there are bigger cycles in play here which will most likely take us much lower into the 4 year and 8 year cycle bottom.

 

[trendmagic]

Current Market Outlook 08/15/2006:

DOW JONES BOTTOM SPOTTER: LONG

The markets took off from the opening jump today on the news that wholesale prices were down. Many economists believe that this indicates that the FED is controling inflation. We personally do not care what this means. Technically, the S&P 500 backtested the neckline of a head and shoulders bottom that we pointed out yesterday and bursted to the upside. Volume figures expanded from yesterdays levels, however, they are still not near levels that we would like to see on a breakout such as this. We mentioned the 1280 level yesterday and how that would be key to break. We did that today and did it on a closing basis. The S&P500 closed at at nearly a 1.5 month high today. The next zone of resistance is the 1295 to 1300 level on the S&P. This represents the previous swing high set a the 1294 area and also a previous support area set back from late April. Remember, previous support levels, once broken become resistance. Let see how the market reacts to these levels.

We will use this rally as an opportunity to short this market. We will update you when we see a tradeable top in place from our viewpoint.

 

[trendmagic]

Current Market Outlook 08/16/2006:

DOW JONES BOTTOM SPOTTER: LONG

The markets continued higher today and volume expanded for the 2nd day in a row. The nasdaq gapped higher on the open and this puts up a caution flag for us however, we do not anticipate this gap being filled immediately. The S&P 500 tested the 1295 area today and it will be important how we react to this. If this market can squeeze by 1300, a move to test our intermediate term targets at the 1325 level, or the May highs, may be in store. The NYSE continued to power ahead today, setting fresh new 3 month highs. The interesting item to note today was that this index along with the S&P 500 closed ABOVE the early August highs. Volume was weaker on the NYSE, however it did close above this level and indicates that the rally can run further. On a more intermediate term basis, it also increases the probability that this is a false breakout and these levels will be broken in the near future.

We believe that this rally is smoke and mirrors. We will use this rally as an opportunity to short this market. We will update you when we see a tradeable top in place from our viewpoint.

We mentioned KLAC in the past and that potential buy signal was developing. Today, this stock took off filling its gap from the May selloff. Volume is lighter so any move higher here needs to be scrutinized. We are not looking to initiate any further long positions here. We will ride out our current longs until its time to go short.

Intermediate Term Prognosis:

On a more intermediate term basis, the S&P 500, Dow Jones, and NYSE have all maintained a very shallow retracement of the rally off the July lows. This bodes well for the near term. We are keeping a close eye on the SP500 for clues as to the near term direction of this market. The S&P has traced out an inverted head and shoulders pattern with a neckline at the 1265 level which we are currently resting on. A successful test of 1265 would indicate a target of around the 1325 to 1335 area on this market. We will trace this market out day by day to ascertain an appropriate area to get out of our longs and get short.

We continue to feel that a rally may take us into the end of the month or near it before we see the bigger hands step in and provide downside pressure onto this market. As we have stated in the past, there are bigger cycles in play here which will most likely take us much lower into the 4 year and 8 year cycle bottom.

 

[trendmagic]

Current Market Outlook 08/20/2006:

DOW JONES BOTTOM SPOTTER: LONG

Yesterday's update

The stock market pulled back on Monday with the lowest trading volume I have seen in quite a while, looks like the lowest of the year. This in the light of a pullback off the recent run up from last week. The markets didnt give back much and look poised to run higher yet again. We are looking for a quick, sharp move that will take us to the 2200 area on the nasdaq and around 40 on the QQQQ to get short. Again, we dont expect this rally to be bought...just sold into. The Nasdaq has 3 gaps open just below the leves are currently sit at. These will get filled.

As we have maintained for a couple weeks now, the 4 and 8 year cycle lows are due this fall. We fully expect the markets to work their way down to substantially lower targets before embarking on a viscious bull run this fall, all the way into next year. Our first target will be the July lows. We will see how the market reacts there.

Our gold stocks looked good. MNG broke out today and went up 7% to take out the shelf from early August at the 4.05 level. It held above this level on the close and volume was strong. MNG continues to look higher. CDE also continues to work its way higher here and looks like its headed to the 6 level. Gold equities in general are striking distance away from breaking out. In taking a look at the XAU, 149 has to be reclaimed. Once this happens, 155 will be quick. We'll take it step by step.

Intermediate Term Prognosis:

On a more intermediate term basis, the S&P 500, Dow Jones, and NYSE have all maintained a very shallow retracement of the rally off the July lows. This bodes well for the near term. We are keeping a close eye on the SP500 for clues as to the near term direction of this market. The S&P has traced out an inverted head and shoulders pattern with a neckline at the 1265 level which we are currently resting on. A successful test of 1265 would indicate a target of around the 1325 to 1335 area on this market. We will trace this market out day by day to ascertain an appropriate area to get out of our longs and get short.

We continue to feel that a rally may take us into the end of the month or near it before we see the bigger hands step in and provide downside pressure onto this market. As we have stated in the past, there are bigger cycles in play here which will most likely take us much lower into the 4 year and 8 year cycle bottom.

 

[trendmagic]

Current Market Outlook 08/28/2006: courtesy of our website

DOW JONES BOTTOM SPOTTER: SHORT

I apologize for missing last nights update. We had a death in the family that we had to tend to.

The DOW was up 68, Nasdaq up 20 and the S&P 500 was up 6.7pts. The oil markets had sold off hard overnight. The anticipated effect of Ernesto was not as heavy as originally thought. This helped the markets higher today, on very low volume again we might add. The S&P500 created a "bearish upthrust" today by breaking the highs of August 18th and August 22nd on light volume and subsequently closing beneath those highs. This indicates a condition where the bulls did not have enough strength to break those levels with any buying pressure nor did they have the strength to hold the price above the highs of the 18th and the 22nd. Short term, this is bearish. Volume over the past 2 weeks has been light and the S&P appears to be playing a very tight range which ranges from 1290 to 1302. The market is waiting for the big players to step in and provide a direction. This should come any time now.

The chart below depicts the various support and resistance areas on the S&P 500. A break and close above todays highs indicates that the rally will be extended a bit further. There are two possible scenarios on this chart for a head and shoulders bottom. 1 is with the neckline at the 1290 area and the other is shown with the downsloping neckline which now comes in near the 1260 area. If 1290 is broken and the market closes below this level, odds are that the first scenario for the head and shoulders bottom is not an option anymore and also suggests that the uptrend that began in July is over.

As we suggested before, we continue to look for lower prices in the weeks ahead.

 

[trendmagic]

Current Market Outlook 09/06/2006:

DOW JONES BOTTOM SPOTTER: SHORT


As we have been suggesting, the traders came back into this market today. Volume increased to its highest levels on the nasdaq in 3 weeks. The action was all to the downside today. What we find extremely troubling about today's action is the amount of destruction on the techs and transports. These indices were down by large %s. The nasdaq decline 1.7%, semiconductors down 3.3%, transports down 1.75% and the list continues. The transports are nearing the August lows rapidly...this is not good news for this market in general.

What we also saw today was the indices come off their highs with volume. It suggests that there will be more selling underway. Actually, all the majors have come back to support in the form of their uptrends from the July bottom. Problem here is that we are testing these support levels with big volume. This indicates a weakening condition and implies that the trend will be broken. Tomorrow will be an interesting day to see what this market is made of. We will either get a bounce or crack right through support. That should give us some clues of what we should expect for the next couple of weeks.

Below, I have posted a couple of charts I am watching. We are at key support areas on the SPX and the DOW and the NYSE and at key resistance levels on various tech sector stocks.

We are also watching the $XAU closely here. There may be a possibility of a false breakout yesterday. This index has traced the market from the 2003 bottom, the question is do we decouple here or do gold stocks continue in the same path that we see the equity markets taking over the next 6 weeks. Seasonality is on the side of gold in September. We will see

 

[trendmagic]

Current Market Outlook 09/07/2006:

DOW JONES BOTTOM SPOTTER: SHORT


Today, the markets continued their downward movement with the DOW being trimmed by nearly 75pts and the Nasdaq pulling back by nearly 13. We said yesterday that we wanted to see how the SP500 tested the uptrend line from the July bottoms and that this would give us clues as to the near term direction of this market. It didn't even put up a fight. It sliced right through it. This is negative in our view. The next important and more critical zone of support lies at 1292, which is right where the decline stopped today. This represents the neckline of what many traders view as an inverted head and shoulders bottom. We may find minor support here for a move back higher to backtest the broken trendline up near the 1302 area but I dont view this as a high probability. In either case, that would not change our opinion regarding the downward movement that we expect until the middle of October. Volume was again high today and it continues to increase on the way down. Again, lets watch 1292 closely.

The nasdaq showed us something today, just another little clue. We had a gap down this morning that was eventually filled mid day. The nasdaq even traded a bit higher during the session. However, the bulls had no fight in them and gave back everything to close at the lows of the day. This is just the beginning but it is typical bear market action. Volume expanded on the nasdaq again today. On the very short term, we may have a minor bounce here but nothing more should develop.

The SMH(semiconductor holders) was down today again and came very close to the support line we drew from the July bottom. You can view this chart in our archives section for this week here. What was very important to note was the volume that we are approaching this support area with. It was huge today, nearly 27 million shares. Short term bounces aside, this index should smash through that line.

We mentioned the XAU and gold in yesterdays update. This index has turned ugly and fast. We see many reversal patterns out there that indicate a move lower is indeed what we should expect. The inverted head and shoulders pattern that we were watching on this index was broken to the upside. This turned out to be a fakeout. Short term rallies aside, we are moving to a sell signal on this index. The action doesnt look pretty. 144 will be a key area to see how she wants to hold up.

We also dont like the way NEM is breaking down below the uptrend line it has established from the 2005 bottom. Not bullish

 

[trendmagic]

Current Market Outlook 09/10/2006: courtesy of my website

DOW JONES BOTTOM SPOTTER: SHORT


Nothing has changed in terms of the SP500 since our update last week. We have the possibility of going to the 1305 area on a backtest of the broken trendline. The volume patterns, seasonality, and a slew of indicators showing bearish crossovers has us in the bearish camp suspecting much further downside.

We have done an analysis on the AMEX index which has yet to break down from its uptrend that began in 2003. We are seeing a potential breakdown in the making for the reasons mentioned on the chart.

Also, we would like to point out a very bearish development in the $NYSE that we have noticed. On a weekly basis, the NYSE has printed a bearish engulfing candlestick pattern. This pattern is defined as a reversal pattern that can be bearish or bullish depending upon whether it is in an uptrend or downtrend. The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body. We would usually like to see a big price spread and large volume on last weeks candle but we think it is bearish nonetheless. The formation presented itself right at resistance areas and supports our views for lower prices ahead

 

[trendmagic]

Current Market Outlook 09/21/2006:

DOW JONES BOTTOM SPOTTER: NEUTRAL

Today was a very interesting day and could prove to be the reversal day that we were looking for. There is a very reliable candlestick pattern known as the "bearish engulfing" pattern. This pattern is a reversal pattern defined by the image below. It occurs when the "real body" of the first candle is engulfed by the real body of the second candle. The first candle should be an upday(which it is), while the second candle should be a down day. Let me define a "real body". This is the distance between the Opening price and the closing price of the day.

I find this pattern to be even more reliable when stocks are approaching critical inflection point. Additionally, I like to see the high of the second body take out the high of the first body and also the CLOSE of the second body to be lower than the LOW of the previous day. This is even more bearish in my opinion.

Lets take a look at some of our markets and how they look here.

The QQQQ is at critical resistance at the 40 area. This ugly candle we had today is not going to help its case...especially after you see our next chart on the SMH(semiconductor holdings ETF)

Here is a look at the SMH. This chart is very telling....it is a leader of this market and it is doing just that...leading to the downside.