Wang’s Happy Trading

Last weekend, in my Market Forecast, I wrote:

"For the new week, after trying hard, but unsuccessfully, to break away from the recent resistance levels (SPX 1000; Nasdaq 2000), the market technicals are showing slight weakness.  The MACD on both SPX and Nasdaq have turned lower.  Nasdaq closed below its 10-day MA.  SPX closed right at its 10-day MA.  The market may need to get a quick drop for the major indices to test the 20-day MA.  Again, the relationship between the dollar and the commodity sectors will be among the top factors.  Next week is also options expiration week.  So, be ware of expiration manuevers."

Again, things happened exactly as forecasted above.  On Monday, the market took a "quick drop" to visit the 20-day MA.  The dollar jumped and the commodity sectors led the market down.  But, since we wisely went to cash the week before, it really didn’t harm us.  Instead, it gave us a chance to play the downside.  On Tuesday, the market saw some buyers coming back.  The dollar started to fade again.  On Wednesday, the market started weak, gapping lower.  It gave us a chance to cash in on our downside plays, including our FSLR puts.  The market soon reversed and we hopped on the long side again, giving us winning trades on both sides!  On Thursday, the market continued to rally on.  Commodity sectors rallied hard on Friday and pushed the market to a new 2009 high, helping us wrap up another good week!  We waited patiently for the market to show clearer directions and were rewarded (see my article on "Learning When NOT To Trade").  As cautioned on expiration manuevers, the market ended completely differently than how it started, which made some expiring August options very profittable!!

For the week, the Dow was up +184.56 points; SPX added +22.04 points; Nasdaq gained +35.38 points.  Both gold and oil closed higher; the dollar dropped.  At the time of this writing, Asian markets are heading higher.  Let’s see where the market stands after Friday’s close:

SPX (click to enlarge)

On Friday, SPX jumped +18.76 points to close at 1026.13, above its daily upper BB.  Its daily MAs and MACD curved higher.

Nasdaq (click to enlarge)

Nasdaq gained +31.68 points to close at 2020.9, above the 2000 level.  Its daily MAs and MACD turned up.

The market certainly closed the week on a strong note.  After two weeks of testing the upper end of the recent trading range, the market did a quick drop and was able to close just above that trading range.  SPX tested its 20-day MA, while Nasdaq tested the 30-day MA.  Both indices closed at a new height since October 2008.  For the new week…

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Last weekend, in my Market Forecast, I wrote,

“For the new week, the “stress test” results on banks will likely be a mover for the market.  Meanwhile, much attention seems to be shifting towards energy sectors.  Techs are still healthy and Nasdaq should push to perhaps test 1800.  For SPX, 900 is the next resistance.”

Indeed, the stress test results moved the market quite a bit, and the energy sectors kept pushing higher.  On Monday, the market had a broad-based rally and Nasdaq closed above 1670 while SPX went positive for the year!  We locked in some profits on our financial and energy plays!  On Tuesday, the market retreated slightly, but, SPX held above the 900 level.  On Wednesday, energy stocks jumped again and the financials were strong ahead of the stress test results.  We captured more profits from a different set of energy and financials trades.  On the day of the official release of the stress test results, the market locked in profits and waited patiently.  As soon as the results came out, the financial stocks traded higher in after-hours trading, and, I wrote an article to get us ready for Friday’s trading.  There was no surprises on Friday, and the employment data came in better-than-expected!  We finished off another great week, in time for the Mother’s Day Weekend (click here to see the trades)! 

For the week, the Dow was up +362.24 points; SPX jumped +51.71 points; Nasdaq added +19.8 points.  The energy and financial stocks pushed SPX to a 4-month high.  On the other hand, although still making gains, the techs took a backseat in the rally.  Let’s see where the market stands after Friday:

SPX

SPX gained +21.84 points to close at 929.23.  Its daily MAs and MACD were up.

Nasdaq

Nasdaq added +22.76 points to close at 1739.  Its daily MAs went higher, but the MACD was flat.

We started looking at energy sectors 3 weeks ago, predicting that if the market were to go higher, the energy sectors needed to provide the extra fuel.  Back on April 19, I said in the Market Forecast, “Energy stocks have been lagging, but, some sectors are shaping up for possible breakouts!“  In the Sector Watch that weekend, we looked at XLE and OIH as the sectors that were ready to move higher.  Here we are, 3 weeks later, stocks in the energy sectors accelerated in their rally and pushed the market higher.  Financials are still playing a big role.  Techs slowed down a bit, but, are still healthy. 

After breaking above 900 this week, SPX just rode its daily upper BB up and up.  Nasdaq saw substantial profit-taking on Thursday (It looked like big funds cashed out on techs to get ready to push the bank stocks higher!), but, the 10-day MA provided solid support.  Asian markets are a bit mixed this evening, but, still seeing more greens than reds.  For the new week, the market still looks strong and should push higher to test the next resistance levels: SPX 950 and Nasdaq 1800.  Energy sectors have gone up fast.  As the market moves higher, the breadth is getting wider.  This shows that more sidelined money is coming back into the markets.  Techs took a backseat last week, and could get stronger again in the new week.  This week is the options expiration week for May, so, be a little careful if/when SPX reaches 950. 

Sector Watch

XLF (financials)

XLF penetrated above $11 on Monday and continued on to $13.  Some stocks in this sector are beginning to look a bit toppy.  $14 is the next resistance.  Above $14, XLF can take another jump to $16.  We should see some continuation on the buying early in the week, followed by some quick profit-taking in the middle of the week.  We’ll have to monitor how heavy the profit-taking gets.

USO (oil)

USO has made some very impressive climb in the past 2 weeks.  $32.5 is a resistance, above which, it could lead to $35.

XLE (energy)

XLE closed above the resistance at $50 last week.  The chart is still strong, although $52 is another resistance.  Two of our favorites, APA and DVN, have gone quite far.  OXY and HES seem to still have a lot of room to go higher.

MOO (agriculture)

MOO also jumped higher last week and pushed to its highest level since Oct 2008!!  Above $35, MOO could pushed to $40!!  BG recently announced a raise in dividend and has been recovering.  SYG seems to be shaping up for a breakout.  POT and CF are still strong.

Good night and HappyTrading! ™

Last weekend, in my Market Forecast, I noted,

“…as I said on Wednesday, this market may be looking at a near-term bounce.  For the new week, if the market does bounce, it will have to get above the 10-day MA before it can get anywhere.  For SPX, it will be about 725 and for Nasdaq, it is around 1350.”

The market did indeed bounce.  On Monday, it traded slightly lower.  On Tuesday, the financials led the market on a huge rally.  Nasdaq closed above 1350.  This time, the rally did not fade!  On Wednesday, the market traded in a tight range and ended flat.  But, it continued higher on Thursday with the financials getting another boost.  SPX closed above 725!!  The shorts were thwarted yet again on Friday as the market came back up in the afternoon and finished higher.

For the week, the Dow finished up +547.04 points; SPX added +73.17 points; Nasdaq jumped +137.65 points!  It was the strongest week this market has had in 6 months!!  On Friday, after we locked in our profits, the market started to slide.  But, I said, in our Trading Room:

HappyTrading March 13, 2009 7:59 AM
market
sliding now… but, the nature is a bit different than before; it is not dropping like a rock; this perhaps means that the shorts are more cautious now…

Eventually, the market came back up and ended in the green zone!  Let’s see how the market indices look:
SPX

On Friday, SPX gained +5.81 points to close at 756.55.  It closed above its 20-day MA.  The MACD continued up.

Nasdaq

Nasdaq added +5.4 points to close at 1431.5.  It closed just below its 30-day MA.  The MACD went higher.

Both Nasdaq and SPX closed above their respective 20-day MAs, with Nasdaq knocking on its 30-day MA.  Both 10-day MAs have turned higher; both MACDs are showing a new bullish crossover.  VIX is now under 45.  These are good signs for a near-term bottom.  For the new week, Monday is going to be a little tricky.  After running up for 4 days, the intraday charts are getting toppy.  If the market can hang above the 20-day MA (SPX 750; Nasdaq 1400), we might just see the market push this rally higher.  We’ll need to see if the market can let out some steam without losing altitude.  Above the 30-day MA, the resistance levels are at SPX 800 and Nasdaq 1500.  On the downside, the 10-day MA should become the support.

Sector Watch

GLD (gold)

GLD struggled to find support last week.  It finally managed to bounce off of $87.5.  If it goes above the daily MAs (or, $92.5), this chart will once again look bullish.  We’ll keep a close watch on the gold plays as they will give us clues on how funds are being balanced between the perceived safe havens and the oversold stocks.

XLF (financials)

XLF jumped +30% last week, from $6 to $8!!  It closed above its 30-day MA, and the 10-day MA has flattened.  It looks like it has room to go higher.  But, perhaps it needs to take a breather first?  Many of the big financials stocks are showing very toppy intraday charts, including GS, BAC, JPM, and MS.

USO (oil)

While the stock market rallied, USO ended flat (just slightly lower).  But, this chart is trying to turn up!  The 10-day MA has already gone above the 30-day MA.  It closed just above the support at $27.5.  If USO goes higher, the energy sectors should once again benefit.  This could help the broader market stay afloat!

SOXX (semiconductors)

I have been saying for a month now that the semiconductors will be very important for the recovery of the stock market.  Last week, SOXX really showed tremendous strength.  It has caught up with its daily upper BB and the MACD has crossed higher.  Both BRCM and QCOM have been very strong.  We’ll continue to monitor SOXX as it shapes Nasdaq.  SOXX has been trapped between 240 and 200 for 6 months now.  SOXX breaking above 240 could really change the tone on the market.

Good night and HappyTrading! ™

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This market has been very volatile, to say the least.  It has been trapped in a tight trading range since November of 2007, and is in the process of testing that November bottom right now.  Fundamentals are very important.  But, in this volatile market environment, technical analysis is “indispensable”.

Today, we were able to profit from the market’s volatility and made money on both the “call” side and the “put” side on two separate trades.  We did this with the help of the charts (technical analysis) and would like to share what we saw in the charts with our readers. 

First, the “put” trade, on a day when SP500 gained +4%!!  Yesterday, we got into ESI puts:
February 23, 2009
07:35 | HappyTrading ESI ($113.30) Bought to Open ESIOB Feb 110 calls, at $6.60

Today, while the stock market was rallying, ESI (and, other education stocks) experienced heavy selling pressure, as I mentioned in our Trade Room that big funds appeared to be dumping education stocks.  We were able to cash this trade out at +21% gain:
February 24, 2009
10:15 | HappyTrading ESI ($110.30) Sold to Close ESIOB Mar 110 put, at $8.00 +21%

These options traded as high as $8.05 and closed at $6.8.  This morning, ESI was trading higher, as the company raised its 2009 outlook.  In the recent months, while the broader market was having a hard time going anywhere, some of the education stocks, including ESI, have been making new all-time highs.  So, what did we see that prompted us to make this trade?  First of all, some of these education stocks have got up so much, they have begun to show signs of being overbought!  Now, let’s take a look at the recent trading on ESI’s daily chart:

ESI (3-month Daily Chart)

In early February, ESI topped $130 and started trading sideways.  It then took a big drop, all the way down to $115.  On the chart, we see that:
1) the 10-day MA (the “red” curve) started to turn lower

Last Thursday, ESI went below $104 on very high volume (partially due to options expiration maneuvers) and,
2) the 10-day MA crossed below the 20-day MA (the “cyan” curve).  This comfirmed that the top had been reached and the stock is heading lower, as the bullish formation no longer holds.  (Note: a bullish formation is when the 10-day MA is above the 20-day MA, and both are above the 30-day MA)

3) Further, we see that although the stock tried to bounce, the 30-day (the “black” curve) MA now acted as a resistance.

So, when it reached the 30-day MA, it had a high probability of going back down again.  And, it did so today.  The company news on raising 2009 outlook was completely ignored.  Fundamentally, one can “reason” that since the stock has gone up so much, the raised outlook was already built into the price.  This would also help us in future trading of this stock, as the $130-$135 range is now viewed as being high.

Now, let’s take a look at the “call” trade.  I wanted to share this one because at first glance, the daily chart might not be that different than the ESI chart. 

This morning, as the market got stronger.  We got in the GS calls.  Since the market was rallying and the financials were leading the way, we wanted to pick the best companies, the strongest stocks, to play calls on:
February 24, 2009
10:50 | HappyTrading GS ($89.10) Sold to Close GSCP Mar 80 calls, at $13.60 +31%
10:24 | HappyTrading GS ($88.20) Sold to Close GSCP Mar 80 calls, at $13.00 +24%
10:11 | HappyTrading GS ($87.60) Sold to Close GSCP Mar 80 calls, at $12.50 +20%
07:31 | HappyTrading GS ($84.20) Bought to Open GSCP Feb 80 calls, at $10.40

We bought GS Feb 80 calls in the morning and took partial profits on the way up.  We locked in profits as high as +31%.  These options closed at its day high at $16.65.  Because of the recent volatility, we were being very careful and locked in quick gains.  GS met some resistance at $90, but, plowed through it as shorts started to cover at the end of the day.  Let’s take a look at the chart:

GS (3-month Daily Chart)

1) Similar to ESI, we recently saw GS’s 10-day MA (the “red” curve) turn lower.  However, the 10-day MA stayed above the 20-day MA (the “cyan” curve).

2) As the market rallied today, GS got above its 30-day MA (the “black” curve), signalling that the 30-day MA is still a support, and the “bullish” trend is staying intact.

The financials were so strong today, GS jumped above the resistance at $90.  It could continue higher to test $100 from here.  So, the two charts are similar, but, there are significant differences.  GS held its “bullish” formation and the 30-day MA acted as a support, while ESI dissolved its “bullish” formation and its 30-day MA became a resistance.

To readers not familiar with technical analysis, the charts may seem like a bunch of indecipherable, random, lines.  But, if you spend some time studying them, you’ll come to see that they contain so much information, including the fundamentals!  You may just find the “hidden” treasures if you learn to “read between the lines”!

Good night and HappyTrading! ™

The market had a “gap-up” open today as oil took a huge dive on the news that damages from Hurricane Gustav seemed to be limited.  But, when SPX went above 1300, the market started to turn lower again!  This weekend, in my Market Forecast, I said,

“Both indices are still within their recent ranges: SPX 1260-1300; Nasdaq 2350-2450.  VIX bounced up to its 20-day MA (not shown here) and closed above 20.  For the new week, although we only have 4 trading sessions, I think it could be a very crucial week.  VIX could test 22 from here, which would not be good for the market.  SPX‘s daily MAs are getting pinched closer and closer together; this could signal big movements coming soon.”

VIX tested 22 today and closed at 21.99, and, we saw some big swings on the market.  The high on the Dow was 11,709.17 and the low was 11,471.9; a swing of more than 300 points!  In the Sector Watch, we also looked at USO and UNG seeing the potential to test the recent lows.  Today, both broke below their support levels!

Energy-related stocks got dragged down lower with oil and natural gas.  XLE (energy) took a hit and dropped 5.49%.  Solar stocks were also weak.  Metal and mining stocks were among the biggest losers: RTP -10.46%; X -10.28%; BTU -11.96%; ACI -14.84%; MEE -10.02%.  Fertilizers recorded some big losses as well: MOS -8.93%; CF -9.44%; POT -6.53%.

The Dow was down 26.63 points; SPX slid 5.25 (after being up +20 points!); Nasdaq slipped 18.28 points (was up more than +45 points in the morning!):

Most sectors ended red, with commodity-related sectors recording steep losses:  USO (oil) -3.96%; UNG (natural gas) -9%; XME (metals and mining) -7.33%; OIH (oil services) -5.07%; GDX (gold miners) -6.35%; GLD (gold) -3.07%.  MOO (agriculture) fell 4.45%.  XLF (financials) added +1.4% while HGX (housing) gained +1.63%.  FXI (Chinese ADRs) fell 1.85%.

SPX

SPX slid 5.25 points to close at 1277.58.  It closed at its 30-day MA.  The MACD stayed flat.

Nasdaq

Nasdaq lost 18.28 points to close at 2349.24.  It closed below its daily MAs and just below the 2350 level.  Its MACD went lower.

The market is trading fast, up and down within the recent ranges (SPX 1260-1300; Nasdaq 2350-2450).  Nasdaq closed just below 2350, the lower end of its recent range.  VIX popped up to 22.  Commodities took a big hit today and could be starting a new leg down.  USO‘s next support is at $85, while UNG is basically at its all-time low!  2 months ago, UNG was at almost $64, its all-time high; it closed at $33.45 today, almost 1/2 of its value at the end of June!!  MOO also broke down below its recent support ($50), and, could slide lower from here. 

So, SPX and Nasdaq are barely hanging on.  Commodity sectors are looking weak again.  On the other hand, the financial and housing sectors are bouncing nicely.  Still getting mixed signals.  We’ll be watching Nasdaq closely tomorrow to see how it handles 2350.  Also, if VIX goes above 22, it would not be good.  Be very careful!

Good night and HappyTrading! ™

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