Erick Stern Trading Ideas

Alternate 30 minutes count for the Dow

2012-01-26T21:47:00.001-04:00

Dow January 26

2012-01-26T08:25:00.002-04:00

Well the Dow is only 0.93% of invalidating the 1-2 bearish count, Elliot theory puts form before ratios and the form still looks like a zigzag or double zigzag retracement, we’ll know soon, but it appears that we need a bear miracle to confirm the count.

Check for this 10 day momentum levels in the following days, a 2.41% drop is needed today to reverse momentum, a 2.2% from today’s level will take tomorrow 10 day’s momentum below 0.

Wave 2 rule and the end of it

2012-01-22T14:56:00.005-04:00

It’s not a guideline it is a rule: “Wave 2 never moves beyond the start of wave 1”, if the Dow crosses the 12876 level, this count is not valid. A mere 1.22% rise in the Dow from Friday’s close will cancel the rule.

Now, the zigzag and double zigzag guidelines place the length of c equal to that of a, this guideline could be consider already fulfilled since the relationship is 0.96 at Friday’s close, a 1:1 amid a-c will put the end of c at 12761.30.

Looking at closing prices and a big zigzag

My 30 mins. preferred count is still valid, the guideline for a extended fifth wave have the 0.382 of the move within wave 4. If green 5 ended last Friday the 0.382 is at 12468, if it ends at 12761 the golden section is at 12483, also the guideline works for the end of 5 red with the 0.682 part within 4 red for an extended red 3.

According to data at indexarb.com, IBM is the highest weight stock in the Dow Jones with a 11.22% almost double of the nearest follower Chevron (CVX) that holds a 6.36% of the Dow. Following Chevron are Caterpillar (CAT) with 6.29%, MacDonalds (MCD) 6.25%, Exxom (XOM) 5.21% and 3m (MMM) with a 5.10% of the Dow.

IBM jumped 4.43% with big volume on Friday after earnings, stopping what looked like a bearish head and shoulder and taking the price above the ma(50) and also accounting for much of the 0.76% Dow Move.

CVX is set to report next Friday, CAT and MMM are scheduled for Thursday 26, and MCD is reporting next Tuesday 24. Any of those heavyweights are going to have big impact in the Dow price so watch for the action.

Dow Jones Wednesday 1/18/2012 3:23 PM

2012-01-18T16:27:00.002-04:00

This is my preferred count at this time; wave 2 is going to work us to the end. Of course if the Dow keeps climbing above 12675 we all will find new counts.

Check for a daily close below 12418, that is my trend – changing level.

Nyse Advance Decline Figures

2012-01-16T10:30:00.001-04:00

A more or less significant divergence is taking place for the last 2+ months, most of times this divergence signals trouble for the markets ahead.

Dow Update Jan 13

2012-01-15T14:42:00.002-04:00

I want to put an end to 2 at 12514.62, this can be the count with a truncated 5 of 5 of c of c of 2 at 12483.62.

Also 12514.62 could be 5 with a 1-2-1-2 downward underway, in that case 12483.62 should hold.
An up trending line with some significance was broken last Friday, but we still need a break below a more important up line and the 12315 ≈ level.
12485 and 12315 are now the focal support & resistance levels.

Similarities between May 2008 – January 2012

2012-01-11T20:42:00.009-04:00

On May 19, 2008 the Dow was in what looked like a powerful uptrend, a three months resistance was broken, the uptrend line was well defined, the price had cleared the ma(50) which was sloping up, a major down trending line was broken and both Wilder’s signals were positive.

At the close last Friday January 6, 2012 the Dow was showing a very similar appearance.

Take a look at a P&F chart of the Bullish percentages for the SP on May 19, 2008, a clear bull confirmed signal was in effect. The percentages were at 63, not yet in what is defined as a dangerous bullish zone.

Last Friday the gauge was almost at the same level and a Bull sign was also running.

Weekly speaking the Dow had produced three channel- buy signals in the last six weeks on 5/19/08, two of them were produced with the long and short term MA aligned up.

Last week there were two channel related buy signals in the last six weeks, also the MAs were signaling a powerful move to the upside.

Now you know what happened in the months following May 2008, I’m not suggesting anything; anyway the sure thing is that the market has its own law no matter what technical or fundamental are.

Yesterday was the 67th trading day of what we are calling wave 2, proposed wave 1 ran for 108 trading days, so yesterday we had an exact 0.62 relationship between waves.

The market is stubbornly trading above an uptrend line, check for the 12515 level and the lower line in the following days, if 12515 is broken look for a ceiling around 12700.

A few traditional technical signals and some untraditional opinions

2012-01-08T19:19:00.005-04:00

The golden cross by definition is a very bullish indicator that happens when the 50dma crosses above the 200dma. Well, the ma(50) is now above the ma(200) so according to the description we ought to expect the markets to keep strong.

Au contraire of the golden cross is the dark or black cross, a supposed bearish signal that comes in effect when the 50dma crossed below the 200 dma.
For the past 10 years we had some gold and dark crosses in the Dow, a total of 8 dark crosses registered in the index, the number of gold crosses were 9.

Dark signals are red, gold signals are blue:

Had we traded this signals the results would had been like this.

Of the 8 dark crosses only 2 produced profits although the January 08 cross gave a 36% profit, the 25% right times makes this signal a lousy trading strategy.

Of the 8 golden crosses in the last 10 years without the one in January 3, 2012, 4 signals resulted in positive results. The 50% of the time that this signal gives positive results makes it also an almost worthless trading signal.

The USD United States Dollar

The Federal Reserve Created and maintains three different Dollar Indexes

The Broad Index
“The broad index is a weighted average of the foreign exchange values of the U.S. dollar against the currencies of a large group of major U.S. trading partners. The index weights, which change over time, are derived from U.S. export shares and from U.S. and foreign import shares.” From Fed Website
The FED staff selected 26 currencies of countries whose bilateral U.S. imports or exports exceeded 0.50% of the total in 1997. Adjustments were made for taking the Euro into account.
The Major Currencies Index

“The major currencies index is a weighted average of the foreign exchange values of the U.S. dollar against a subset of currencies in the broad index that circulate widely outside the country of issue. The weights are derived from those in the broad index.”
For this index, seven of the twenty-six currencies in the broad index were selected. The Euro, Canadian Dollar, Japanese Yen, British Pound, Swiss Franc, Australian Dollar and Swedish Krona. These currencies trade widely in markets outside their areas and because of that the “Major Currencies Index” can be used to gauge financial market pressures on the dollar.

OITP (Other important trading partners) Index
“The OITP index is a weighted average of the foreign exchange values of the U.S. dollar against a subset of currencies in the broad index that do not circulate widely outside the country of issue. The weights are derived from those in the broad index.”
This Index in contrast to the evolution of the Major Currencies Index have trended upward since 1980 basically because the currencies in it have depreciated sharply as a result of high inflation in their respective countries.

I’m going to chart the Major Currencies Index trying to define a relationship between this Index and the Dow Jones. The data is from the FED website.

For the past 10 years The USD had made two lows almost at the same level, in march 2008 it closed at 70.35 in the beginning of the big 2009-2009 Dow Drop, The USD closed at 83.5 in February 2009, in a year the Index gained almost 19%, the Dow in that period dropped 45% from a close at 12262 in March 2008 to 7062 in February 2009.

The USD Index made a 10 year low in august 2011 at 69.07 the Dow closed at 11613 in that date, so we have a 2008 like situation now.

From 8/11 to this month the USD has gone from 69.07 to 72.83 for a 5% appreciation, the Dow closed last Friday at 12359 for a 6% gain since August 2011.
Someone must give; either the USD continues making new lows or the Dow is in the path of a correction.

Old post (12-11-11)

2012-01-04T14:44:00.010-04:00

Well, we are waiting for this wave 2 to end if in fact we are in wave 2. Seasonality must have a lot to do with the prolongation of this retracement. I’m going to review some parts of my Sunday December 11, 2011 post, “Again wave 2”.

http://erickstern.blogspot.com/2011/12/again-wave-2.ht ml

Original post: A relationship of equals between a and c looks improbable since wave c would end above 13000 so a 0.618 is with some high probability. That would put Dow at 12400 at the end of c. A more or less truncated c is in agreement with c of 2 of 1.

Original Chart:

Today’s Chart:

Original post: Time relationship, internal and external trendlines, put the c below 12400 at the end of this week or at 12500 at year's end.

Original Chart:

Today’s Chart:

Original post: And last but not least, the Dollar can make a last push before retracing and then not look back for a long time, the inverse relationship between markets and Dollar could work like this.

Original Charts:

Today Charts:

This supposed wave 2 has been running for too long, maybe we all are wrong in our wave count, if that’s true and been completely short , I can only say as that fabulous punk rocker David Byrne: “You may say to yourself, my god, what have I done?

2008 again?

2012-01-02T17:16:00.002-04:00

Remember May 2008, moving averages trend higher, price crossed above weekly channel and the US Dollar was trending lower.

Then you know what happened next:

Are we now in a similar market?

Umh?, the US Dollar is already moving higher and different from 2008 this supposed retrace from a down trend completed its 13th week two weeks ago. 2008 retrace took 8 weeks.

So what is coming?
Maybe these relationships have some meaning, we’ll see in the following days.

Closing prices

By the way almost all European markets closed strong today.

Feliz año nuevo a todos,

Dow 13000 ???

2011-12-22T17:51:00.004-04:00

This is an excerpt from an email I got last Tuesday from one of those colleagues that keep pushing newsletters:

“No, I haven’t been hitting the eggnog early this year! The table is now set for a fierce rally, and it’s time to claim your spot at the feast or get left behind. That’s why you are about to hear me say something I say very rarely… It’s time to back up the truck and buy our top game-changing stocks for 2012. We’re seeing some dramatic changes in this market that signal we’re about to see a rally that will take us all the way to Dow 13,000.”

So what do you think, Dow 13000 or Dow 8000 some months from now?

By points:
B ended at 11231
Possible C conclusions are A (1576) x 0.618 + 11231= around 12200
A (1576) + 11231 = around 12800

By time:
Either C ends this week or 1.618 x 25 from Nov 25 = around 4 – 7 January 2012
Logical thinking: 12800 would retrace 1 completely, 12200 is a 72% retracement of 1, 12200 is preferred
Conclusion: if 12200 is going to be the end, either the markets will keep zigzagging for 3 or 4 weeks or start going down immediately, maybe it’s time to buy some VXX calls.

Sorry for not posting most often, I have a very demanding day job
Feliz Navidad a todos,

Wave 2 when are you ending

2011-12-13T12:58:00.006-04:00

Both the Dow and the Wilshire produced yesterday P&F breakdown, the SP was already in bearish mode.

The Dow will have to touch the 12250 level on an up day to reverse the bearish signal.

The Dow traded below 12000 yesterday but managed to close above that level.
For the past 6 days both 12200 and 12000 were touched 3 times, the price-volume bar confirms the importance of this range.

The flag formation of the Dow has a bullish connotation, a close above the upper line will produce a top price around 12500. Personally and looking at the inability of the Dow to hold below 12000, I think the end of this reversal that started on October 4 will be around 12500. Close to that level I will add to my short positions but I really would be very satisfied if the Dow starts wave 3 without reaching it.

Ya veremos el cierre de hoy,

Buenos Dias,

Again wave 2

2011-12-11T15:09:00.008-04:00

Waiting for the end of this 2 wave could be an exercise of patience, I am completely and 100% ultrashort and with some puts to add a little interest, so my only action is trying to figure the end.

If there's some true in the “fractality” ?? form of markets, wave 2 looks at its end.

A relationship of equals between a and c looks improbable since wave c would end above 13000 so a 0.618 is with some high probability. That would put Dow at 12400 at the end of c. A more or less truncated c is in agreement with c of 2 of 1.

Time relationship, internal and external trendlines, put the c below 12400 at the end of this week or at 12500 at year's end.

And last but not least, the Dollar can make a last push before retracing and then not look back for a long time, the inverse relationship between markets and Dollar could work like this.

Buenas tardes,

Wave 2 end ??

2011-12-06T22:40:00.000-04:00

1-12-11

2011-12-01T17:08:00.002-04:00

I am more or less convinced on this double zigzag because of the month we are, the markets should hold or maybe rally in December. I posted briefly on a market rebound on Nov. 28.

Now, I was expecting the market to drop almost to 11000 because of channel measuring techniques since the 500+ channel broke down near 11600. The market hold above an important internal trend line and that did not work.

Guideline for wave 2 retracing up to 81% put the final c around 12,400, first the market must break above an important down trend line that was topped yesterday.

A triangle is unlikely in wave 2 unless is a complex formation, if that is the case we will have a long time without trend.

So what will be the level of blue b before the final push up to 12400?

Also, can this be a possibility ??

Ya veremos,
buen dia a todos,

! Aja !

2011-11-30T18:38:00.002-04:00

Follow Up 29-11-11

2011-11-29T10:38:00.005-04:00

I have not changed my bearish stance, however when ¾ of your unrealized puts profits disappear in a single trading day you kind of wonder.

11630 should hold as resistance for the down move to continue, definitively 11000 is my first target, based on the broken channel, also there is some intermediate significance at 11000

Some long resistance at 11230, 10530 would be a target if 11000 broken.

Let's see today action

Good day,

Here´s another thought

2011-11-24T17:59:00.005-04:00

Thanks to http://danericselliottwaves.blogspot.com/ for getting my attention to this perfectly parallel downward channel. The failure of the prices to reach the top of the channel is certainly an indication of a future break of the lower line. This is a 2000 point channel, if the lower line is broken the level minus 2000 is a new low target.

For the immediate future I am trying to project some consolidation area near the down line of the channel.

My first choice is a big flat with B wave stopping at the B1 10655 level fulfilling the great December-January almost etched rally.

My second projection is that BIG 2 ended definitively at 12231 on October 28, BIG 1 developed in 51 trading days and BIG 2 ending on October 28 had 19 trading days, 19/51 = 0.373, the nearest exact days relationship to 0.382.

With the channel measuring technique we'll put the end of 3 of 1 of BIG3 at 11000, then a 4 will stop around 11230 and 5 will be 573 points long same as 1 ending around 10655. With this scenario then we will have 2 of 1 of 3 running on December giving us some year end mini rally.

Anyway these are just possible scenarios, lets wait for the real development.

Possible year end's rally

2011-11-21T10:24:00.002-04:00

Follow Up 11-21-11

2011-11-21T09:35:00.001-04:00

Basic Wilder

2011-11-17T11:34:00.002-04:00

Don't forget the US Dollar

2011-11-17T09:34:00.001-04:00

Follow through 11/16/2011 9:44 am

2011-11-16T11:39:00.001-04:00

Follow up

2011-11-15T10:21:00.002-04:00

Triangle, Flat, Zigzag or What

2011-11-13T15:14:00.001-04:00

I confess that I´m obsessed with the ratio analysis between waves and the purported fractal configuration of the market and waves; being that, let’s review the relationship.

Proposed Wave (a) could easily be 2 since 1576 points (12231-10655) is a 76% of 2069 (12724 – 10655), however now it doesn´t look that way, in the triangle A is 574 points, B is 513, C is 389, D is 373 and E could be 240 to end around 11900. That way we´ll have E/C= 0.618, C/A= 0.678, so if this is a (b) triangle it must certainly stop above the lower line with a possibility of an intraday undershoot. Citing Prechter , ¨ triangles always occurs in a position prior to the final actionary wave in the pattern of one larger degree¨, the (b) triangle wave of 2 fits that description perfectly.

Wave a of (a) is 989, 9.3% from 10655 to 11644 in 11 days, wave b is 247 or 25% of a, c of (a) is 834 or 7.3% in 11 days, we have a perfect time relationship between a and c of (a).
Now, if (b) is in fact a triangle ending around 11900, (c) must have some relationship with (a), .618 of (a) is 973 would carry (c) to 12873 right above our purposed 0, .382 of (a) is 602 ending (c) around 12500, I am not sure of the triangle now thinking about maybe a double tree.
12400 is the level for Wave 2 retracing 85% of 1, in that view I cannot see the markets going up much next week.

Complicated, yet Simple

2011-11-06T13:44:00.003-04:00

Here´s a thought from the forest to the trees

The big zigzag started after the Dow topped at 14,093 on the October 8 2007 week, the A wave ended at 6626.94 for a 7466 points or 53% decline from the top.
Big B ended at 12681 for a total of 6055 points, retracing 81% of A, now, B was a 3 a-b-c movement that developed like this:
a, 6626 – 11204 = 4578 points
b, 11204 – 9686 = 1518 points, 33% of a
c, ended at B, 9686 – 12681 = 2995 points, 65% of a, cool

Let´s go to the trees

We have the ¨exact¨ end of B on July 21 at 12,724.41, then 1 ran 2069 points to 10,655.30 on October 3, the return move took the Dow to 12,231.11 on Oct 28 for 1576 points or a 76% of wave 1.
What is next?
a) 12231 was the end of 2, the market will drop to the vicinity of 10,200 or below but then, what will happen with the almost infallible Santa Claus rally on December?
b) Wave 2 hasn´t ended yet, and we are in the b part of an a-b-c wave 2. If that´s the case the following will happen. Wave b of 2 will go down to one of this levels:
11,632 with c stopping at 12,600 max, right below the upper resistance line
11,443 with c stopping at 12,400 at the internal trend line
11,000 with c around 12600 maximum
With a Fridays’ close at 11983, we have a minimum 3% drop for the following days.
Beware of the BIG formation; it can take the Dow to a hopefully truncated C around 8000.

End of the road....?

2011-11-01T12:06:00.001-04:00

It looks like 12200 was the top of this move that started around 10655 for a 14.5% gain in 18 trading days, you knew that couldn’t last forever.

The market should hold above 11700 at today’s close, if not, a rethink of the waves must be made.

A final up move will be the last chance for selling longs with a profit, that final move will end between 12000 and 12200, and then a consolidation can take the market to 11250. If reached, that is the level to start buying again.

Here is another look,

OK, but what´s next?

2011-10-30T11:02:00.005-04:00

There is some long term resistance around 12800, also the Dow stopped short of the internal trend line. I would be more comfortable if the index cross the line and it becomes support, that hasn’t come yet. We have a beautiful summation index, but you must remember is a bit lagging.

Wave U-V went from 10800 to 11645 for 845 points or almost 8%, if this wave was meant to be the biggest, the movement would have ended already around 12000.

Wave 1 on W-X is 550 points, wave 2 was a sharp 1 day correction of 207 points or an exactly 38 Fibonacci percent. Wave 3 still running is 557 points at Friday´s close. Hopefully the Dow will cross the internal trend line, if not, 11900 should act as support and the target for the end of the move will become clearer.

Mondays are the worst days of the week for the stock market, Fridays are the best so don’t be surprised if tomorrow the Dow closes low.
PS: Most of the times a compression of the moving averages gives us ample warning of a trend reversal, if that proves right you better let your profits run a little bit more.

Flextronics Price Reflex

2011-10-26T21:52:00.002-04:00

The technology group has been lagging the general market for the last month but some industries within the group look strong. The electronic equipment industry is showing a one month positive relative strength against the Dow, within that group Flextronics is shinning with a RS above 10%.

Last Thursday after market close the company announced results for its second quarter ended September 30, net sales increased $622 million or 8% and the Co. generated $176 million of free cash flow for the quarter.

FLEX was trading inside a perfect up trending channel since mid-august, the upper line was broken in October 10 and seven days later it seemed that the price was returning to the channel.
The day following the announcement Flex broke decisively above the upper channel line closing almost 8% up with a super strong volume.

Channel measuring techniques result in a 7.30 immediate target for a quick 10% gain after today´s 6.63 close. The upper channel must act as support.

Disclosure: I bought FLEX today.

Is the First up Leg still going?

2011-10-20T17:45:00.002-04:00

The Dow found support today around 11400, more or less over the internal trend line.
Both 10 and 20 days momentum are positive. The index went from 10655 to 11644, a 9+% gain in 9 trading days, a consolidation was mandatory.

Most of the times the first up waves after a big drop retrace up to a 75% of the movement so be in the lookout.

Resistance at 11600 must be broken decisively for a continuation of the up leg.

Anyway November and December are coming.

Is The Bull Coming?

2011-10-09T08:52:00.004-04:00

Both down targets set in our previous post on September 18 were reached last week in two successive days, on October 3 the Dow closed at 10,655 and the next day the intraday low was 10,404.

Now it looks like a bullish falling wedge formation was completed on October 6 with the penetration of the upper down trending line, if that is the case we will see the Dow rising with maybe a return move to the upper line before the take off.

Unlikely but possible, the Dow will retest the Lows before breaking the upper line for good. Anyway, the falling diagonal is most of the time a bullish formation.

What to do?

Wait for a decisive close above 11,250 or if you want to be really sure wait for a close above 11,600, before going long. If the bull is really coming there will be plenty of time to make money in the long direction.

Long road for market direction

2011-09-18T15:27:00.004-04:00

Last Friday we had an unusual day in which gold, the US dollar and the markets all closed positive. Gold spot price closed 1.22% higher at 1,814.60, the Dollar Index closed at 76.60 for a 0.47% gain, and the Dow Jones had a final level of 11,509.09 resulting in a 0.66% advance.

Normally these three do not trade in the same direction, having more of an inverse relation between them, which is why we are thinking right now of disarray in the markets with the resulting drop in the next days. However one day does not make a tendency so we will have to wait this week for clarification.

Unfortunately we can’t wish the markets on a direction; the most we can do is exam the possible scenarios and then be ready for action.

The Dow is trading inside a perfect parallel lines channel, it is very difficult and most of the time unprofitable to trade inside a price channel, it is better to wait for the breaking of any one of the lines that will signal the future trend.

We have several possible outcomes for the market in the following weeks:

a) The market keeps going up, breaks above the upper channel line and signals definitively a new uptrend for the markets. That will be the moment for covering all the shorts and start looking for the best groups to go long.
b) The Dow keeps going up but stops right before breaking the upper trend line, around 11,800, and then starts down. If that is the case, you can start your short positions and be in the look out for a violation of the lower trend line. The target will be Dow Jones around 10,700.
c) The Dow Jones stop its five days run and start going down next week, then a triangle like formation will develop before the breaking of the lower trend line. You can start building your short house around the time of the formation of the triangle. The target is Dow Jones around 10,460.

Four year presidential Cycle

2011-09-18T13:03:00.003-04:00

This Stock Market Cycle occurs with great regularity, it pays to be aware of it. According to Stan Weinstein in his book “Secret for profiting in bull and bear markets”, the cycle unfolds like this:
First Year: “But even more important is the reality that no matter who is elected, the year following the election is usually a disaster.”
Second Year: “Historically, the probabilities are strong that in the second year the bear market will continue until a bottom is reached around midyear.”
Third Year: “The third year of the presidential term is the best one of the cycle”
Fourth Year: “The fourth year, which is the election year, is a choppy one”

Data compiled for the last 20 years and six presidents, concurs with Mr. Weinstein description of the Cycle as we can see in the following table.

The Dow Jones returned an average of 8.60% in the first year of the presidential Cycle of the last six presidents, also there is only one first year with a loss for the Dow of the six first years, making the first year a winner in 83% of the time.

In second years, the Dow averaged a gain of 6.11%, slightly less than in first years; also the Dow had 2 losing second years out of six, making the second year a winner 67% of the time.

We are now running President’s Obama third year of the Cycle that it’s to end in October 31 of this year, the data for the past 5 presidents shows us that there is not a single third year loser for the markets, and the average is 20.85% gain for the Dow.

Let’s see now the monthly averages.

According to data found at moneychimp.com, from 1950 to 2009, September is the worst month for the markets overall, it has the lowest average return and also lowest percent of winning over the years. September is a wining month only 43% of the time over the last 60 years.
November and December are the best months for stocks, December is the winner overall, and the three months period from November to January constitute the best quarter run for the markets

What to expect? The Dow ended at 11,118.40 in October 29, 2010, finishing the second year of Mr. Obama presidential Cycle. The Dow closed this past Friday, Sep, 16, 2011, at 11509, so as of date the Dow is returning 3.52% in this Third year. There are 30 trading days left until October 29.
For this September the Dow is showing a 0.90% loss to date, keeping in line with September tradition.

We can fairly expect more zigzags or another drop until the end of October, after that it may pay to enter the markets again. Anyway REMEMBER, these are just statistics, at the end the stock market will do not what politics or the gnomes of Zurich want, but what the economy tells it.

Bermuda Triangle for the Dow??

2011-08-27T20:52:00.001-04:00

After the Dow Jones Industrial dropped almost 16% from July 27 to August 10, some kind of consolidation pattern ought to form; a triangle continuation pattern appears to be in the way right now in the markets.

Look closely at the Dow Jones next week, if this proposed triangle forms, the end will be near the last part of the week. A break below the lower ascending line would confirm the conclusion of the formation, some times a return move takes the price to the lower line, sometimes a return move does not occur, after the breaking of the line the next stop for the Dow is 10,250.

Nature's Law ?

2011-08-14T11:34:00.001-04:00

Elliot Rules, guidelines and interpretation

Two of the motive waves in a 5 waves impulse tend toward equality in time and magnitude, also wave 3 is never the shortest. Let’s see how these guidelines conform to this count.

Wave 1 from 12,724.41 to 11,866.62, 857.79 Dow points, 6.74% drop in 9 trading days.
Wave 2 up to 11,896.44 hum?
Wave 3 from 11,896.44 to 10,719.94, 1,176.50 Dow points, 9.89%, in 5 trading days.

Wave 5 should be equal to wave 1 or a 0.618 relationship, resulting in 857 or 529 points.

Sub Waves (1) (2) (3) (4) (5)
(1) from 11,896.44 to 11,383.68, 512.76 points, 4.31%
(2) to 11,444.61 retraced 11.88%
(3) from 11,444,61 to 10,809.85, 634.76 points, 5.55%
(4) to 11,239.77, retraced 68% of (3)
(5) from 11,239.77 to 10,719.94, 519.83 points, 4.62%

Total sub wave move from 11,896.44 to 10,719.84 is 1,176.60 points or 9.89% from 0, the 0.618 golden division is at 6.11% or a level of 11,169.57, very near wave 4 (less than 1%).

So if this wave count is correct we are in wave 4, let’s see where it takes us, it can be a straight up line but most possibly wave 4 will be a triangle that always occurs in wave 4.
The 15.75% drop in the Dow in 14 days should warn us that the market will take some time to consolidate.

A five wave Elliot pattern?

2011-07-24T13:19:00.004-04:00

In this Dow Jones Chart and the accompanying table, let’s see if an identifiable Elliot wave pattern emerges.

Most of the times third waves are the extended ones, in our case wave III advanced the most, going from 11,934.58 to 12,719.49 for an impressive 6.58% gain in 8 trading days.
As wave I resulted in a 2.46% gain, the relationship between III and I is 6.58/2.46 or 2.67 times, very near the 2.618 Fibonacci number.

When wave III is extended, waves I and V tend towards equality, wave I with its 2.46% gain and wave V with 2.74% are very near correspondence, with only an 11% variation.

The golden section (0.618 – 0.382) is present in Elliot patterns.
When wave III is extended a textbook golden section forms in wave IV both in percent and in time. Wave 5 went from 11,897.27 at the start of I to 12,724.41 in our proposed end of wave V, for a 6.95% total gain in this movement. Now, the 0.618 part of this movement is a 4.30% advance from 0, resulting in a reading of 12,408.85.

12,408.85 is almost exactly our 12,385.16 level for fourth wave, also the 0.618 part of the 25 trading days is 15 days, the amount of time from 0 to the top of wave III.

They say chartists are guilty of seeing formations and patterns anyway they look at a chart and this could be no exception to that, patterns are easily identifiable after they end, that’s what makes speculating in stocks a very difficult art.

The following weeks will shed light about our proposed model; in the meantime my advice is extreme care with your long positions.

Elliot .......Anyone?

2011-07-02T20:13:00.005-04:00

Wave (A) went from 12810.54 to 11897.27 totaling 913.27 units down, wave (B) length as of Friday’s close is 685.5, resulting on a 75% retrace of wave (A). If this is really a zigzag correction (because of the 5-3 A-B), the end of wave (B) must be near.

Let’s review the zigzag rules and guidelines:
Wave (A) always subdivides into an impulse or leading diagonal. PASS
Wave (B) always subdivides into a zigzag, triangle or combination. PASS
If wave (B) if a zigzag it will retrace 50 to 79% of wave (A). PASS as of Friday 07/01.
In a zigzag the top of (B) is lower than the start of (A). PASS as of Friday 07/01

The breaking of the 2-4 uptrend line warns us of a change of pace, also the S&P bullish percentages are in bear mode.

Sentiment: The 5% - five day gain of the DOW looks like a bull trap. Start looking for shorts or at least be very careful in your long positions. Parabolic SAR of your holdings or momentum should give ample warning.

Three long Ideas for Next Week

2011-04-24T21:28:00.005-04:00

Virgin Media (VMED)

On February 17 VMED posted its strongest ever full-year financial results, revenue growth across all areas were up 5.8% Y v Y, and up 6.6% on a quarterly basis. Neil Berkett, Chief Executive Officer of Virgin Media, said: “A strong financial performance combined with the launch of a number of market leading product developments ensured 2010 was a year of great achievement for Virgin Media. We have driven our consumer division to its highest ever rate of revenue growth, maintained robust cost control and delivered our best ever financial year. The significant strides forward in our Mobile and Business operations contributed to this substantial result.”

After the earnings announcement, VMED traded on what appears like an ascending triangle with a flat upper line around 28. For more than 2 months buyers could not make up their mind about the stock price going above 28, then on April 20 VMED reported solid financial results again. Quarterly total revenue of approximately $1,600 million was up 5.7% year over year, quarterly free cash flow was around $162.8 million, up 117.7% year over year, and net income from continuing operations was approximately $7.3 million or 2 cents per share compared with a net loss of $266.2 million or a loss of 82 cents per share in the prior-year quarter.

VMED broke above the flat line at 28 and closed Thursday at 29.76 for a 6.3% increase above resistance.

The stock looks overbought with a strong possibility of a pause or a return move back to the support line which should take place on light volume. The big picture for VMED shows the stock trading at a 3 year high with no foreseeable resistance.

Measuring techniques give us a target of 32, for an 8% profit, a move below 27 will be a signal of exiting the trade for a 9.27% loss.

Crosstex Energy LP (XTEX)

Crosstex operates as an independent midstream natural gas company. The midstream natural gas industry is the link between exploration and production of natural gas and the delivery of its components to end-use markets. In North America, the industry includes approximately 1.2 million miles of pipeline, 525 processing plants and other facilities.
The Company was formed in 1996 to provide gas gathering, processing, transmission, distribution, supply and marketing, as well as crude oil marketing.
Crosstex has 500+ employees, with headquarters in Dallas, Texas.
Crosstex offers two equity securities for investment. Crosstex Energy, L.P. (NASDAQ: XTEX) is a master limited partnership (MLP) that owns and operates the assets of the midstream energy business. The partnership's equity is traded in common units. Crosstex Energy, Inc. (NASDAQ: XTXI), a corporation, is a holding company and the general partner of Crosstex Energy, L.P. Its equity is traded in common shares.

Let’s take a look at the following chart showing XTEX quarterly distributions and stock prices:

From November 2004 to November 2007, XTEX price was between 21 and 27 and the stock was yielding over 7% in yearly distributions. On 8/15/2008 the stock closed at 22.91 yielding at the time over 10% in distributions. Then on 11/14/2008 the stock closed at 5.24 with a yearly dividend yield over 45%, of course that was a warning of bad things to come and on 3/2/2009 on its 10K for the period ending 2008-12-31 the company announced that they will not be able to make distributions to unit holders in future periods until their leverage ratio does not improve and the PIK notes are not first repaid.

More than a year passed without distributions to unit holders from the payment on 02/15/09 to the next payment on 11/12/2010. Right now at 17.94 the stock is yielding 4.46%. The last quarterly distribution on the Partnership’s common and preferred units will be $0.29 per unit payable May 13 to unitholders of record May 2. If we assume at least an equal distribution for the following quarter, at current price the yield would be 6%, a little bit below the 2004-2007 yields above 7%.

Anyway, a stock breaking above its 8 week channel is worth some following. If entering the trade, the 16 level should act as support.

EMC Corporation (EMC)

On April 20 this IT company maker of storage computers, reported a 28 percent gain in first- quarter profit as companies increased spending on data centers capable of delivering tasks through the Internet.

Net income rose to $477.1 million, or 21 cents a share, from $372.7 million, or 17 cents, a year earlier, EMC said today in a statement. Sales rose 18 percent to $4.61 billion last quarter, exceeding the $4.5 billion average estimate. EMC reiterated its full-year profit forecast of $1.46 a share, excluding some items.

For nearly three months EMC traded in a range between 25.50 and 27.50, breaking above resistance on April 20 along with the strong quarterly results. The crossover of the ma(10) above the ma(30) accompanied with above average volume give us some hope of price increasing in the following weeks. The price should hold above 27.50 but a penetration below is a warning sign. A move below 25.50 definitely is a get out signal.

Quick Short Idea

2011-01-13T09:23:00.001-04:00

This set up is only for January 13.

Olin Corp is set to announce on January 31.

Short at the close or very near, at 15 minutes or less to the close, at a price between 20.10 and 19.82, that’s a range of -0.99% to – 2.36% from Jan 12 close.

If you made the trade be aware of your stop loss level, at 20.35 is a range of 1.2% to 2.7% loss and the stock should not close above that level in the following two or three days.

Quick Review

2010-12-13T10:16:00.007-04:00

I started shorting beginning November because the markets were showing what looked like the beginning of a down or consolidation period, on November 12 the SP500 closed below its ma(10) and on Nov 26 a clear downtrend line was formed suggesting more down prices to come.

Things didn’t work out as planed as the markets broke above the down line beginning December. My shorts didn’t perform so I started covering and opening long positions.

As markets continue going up, this Monday I have 4 profitable longs and one losing short. A quick graphic review of my longs follows:

Roc was bought on November 4 on the strength of the basic materials group. Roc held up great the November downtrend as it stays within an ascending channel. Beginning December Roc started a steeper tighter channel. As of today it is my best performing stock.

I entered CPNO on November 22 and right after I bought it started going down. CPNO held above the down line of the up trending channel. Let’s see where this canal takes the stock. I will start to worry if cpno closes below the low up trend line.

WMS was bought on December 3 as the ma(50) crossed above the ma(150) producing a very positive long term signal. The stock looks a little blown up now after it traded for five days above the upper Bollinger band. The ma(20) should acts as support.

My latest addition is CELL. I got Cell on December 8 as the stock broke above the bullish flag-type consolidation pattern.

If the markets don’t throw us a split finger ball again, those longs have good potential. For adding to my longs I am considering MGI and AKRX on the new strength of financials and the ever interesting health sector respectively.

On fundamentals and technical

2010-11-07T19:04:00.018-04:00

“With a common stock, few of us are rich enough to afford impulse buying.”
Philip Fisher

Two companies came to my attention last week after both posted solid earnings and revenue:

Rockwood Holdings, Inc. (ROC) is a global developer, manufacturer and marketer of high value-added specialty chemicals and advanced materials used for industrial and commercial purposes. ROC products consist primarily of inorganic chemicals and solutions and engineered materials. They are often customized to meet the complex needs of customers and to enhance the value of their end products by improving performance, providing essential product attributes, lowering costs and/or making them more environmentally friendly.
On Tuesday October 26, 2010, Rockwood Holdings, Inc. reported earnings per share from continuing operations of $0.52 for the third quarter of 2010 as compared to $0.14 for the same period in the prior year. Rockwood’s adjusted earnings per share from continuing operations increased to $0.55 in the third quarter of 2010 from $0.19 for the same period in the prior year. In addition, Rockwood reported Adjusted EBITDA of $169.1 million for the third quarter of 2010 as compared to $151.1 million for the same period in the prior year.

DIGI INTERNATIONAL INC. (DGII) operates as a device networking company that develops products and technologies to connect and manage local or remote electronic devices over a network, via the Internet or via satellite.
On Thursday October 28, 2010, Digi International Inc. reported revenue of $47.3 million for the fourth quarter of fiscal 2010 compared to $40.0 million in revenue for the fourth quarter of fiscal 2009, an increase of $7.3 million, or 18.1%. Revenue for the year-ended September 30, 2010 (fiscal 2010) was $182.5 million compared to $165.9 million for the year-ended September 30, 2009 (fiscal 2009), an increase of $16.6 million, or 10.0%.

The following table shows fundamental data for both companies and their related industry:

DGII P/E indicates an overvalued company vs its peers, however analyst estimates a forward P/E of 18 for the company, in line with the industry. DGII has very favorable price to cash flow compared with the sector and the industry. ROE for this year suffered because of revenue decrease primarily due to weakened economic conditions and changes in product mix. From 2005 to 2008 the company incremented sales in a 48% but from 2008 to 2009 sales decreased 10%. It can be expected that profit margin and ROE improve going forward along with the economy.
Low points: High P/E, low ROE, low profit margin.
High points: No debt, High cash flow generating.

With a 15 forward P/E, ROC looks undervalued. The company shows high ROE and a fair P/Book. The price to cash flow is very positive and the profit margin is in line with its peers
Low points: High debt, earnings growth estimate below industry.
High points: Good P/E, High ROE and lots of cash.

And for the fun part of this analysis we’ll go through the market, sectors and individual stocks.

The Nasdaq continues its ascent started in the first days of September.

Looking at the 10 days momentum chart I see a decelerating rate of ascent. Despite the fact that a positive reading means the uptrend is still in effect, I would like to see the momentum breaks above the downtrending line.

The index 10-30 days moving average histogram continues on positive territory with a pause recorded around mid October. As long as this oscillator continues with a positive reading the uptrend should stay.

The basic materials and technology sectors represented by the iShares Dow Jones US Basic Materials (IYM) and the Technology Select Sector SPDR (XLK) ETFs, continue going up in line with the general market, they are both at a four month high.

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Rockwood managed to close above 36 last Friday and is now in a new four month high. The moving average oscillator stopped the descent that started around mid October and looks ready to begin going up again. A positive market next week should result in rapid gains for ROC.

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DGII has yet to make a new four month high, the stock paused from 10/20 to 11/2 and then started going up possibly fueled by good earnings news. The 10-30 indicator looks neutral, a positive reading next week will indicate a good entry point.