Thursday, June 7, 2012

Managing Your Portfolio | Big Short Squeeze

Big Short Squeeze on Rumors | MR Investor Chart

The week started out badly on Monday as the S&P 500 sold down very close to our Sunday newsletter bounce forecast near 1260. It actually reached a low of 1266 so it didn’t quite get as low as we predicted but the market was technically way oversold and was ready to bounce up. There were far too many down days in May and the short sellers for the markets and the Euro currency had overstayed their time.

The big question was how the S&P 500 was going to act around the 200 and 250 SMAs which were very close to each other near 1283. Tuesday the market tested 1283 and closed at 1285. It was basically a pause day day but it had the shorts nervous. Then once the rumors of secret meetings between the US and Euro leaders hit Europe, along with some ECB rhetoric, the short squeeze kicked into action.

The rumors had nothing concrete or specific but the snap back up from being oversold and the auto-program technical buying and investor buying above the 200 SMA did the rest. It was a perfect environment to get a big technical bounce day. And as the day wore on, the Republican Governor blocked a pro-union recall vote which spurred on hopes of a Romney Republican boost for President. It was probably small but it could have added a bit to the rally.

It was a good tradeable rally for long swing traders as everything bounced across the board. But you need to put the one day move up in perspective. MR recommends using our MR Investor Chart (invaluable planning resource) to better help you navigate these news’ driven markets (see below). Note how the markets were on the brink of a major investor sell signal on Monday well below the 200 and 250 SMAs. The shakeout worked and the oversold bounce led to investor buys and auto-program buys today after getting above the 200 SMA. The subsequent short squeeze pushed the markets up much higher just underneath the 150 SMA level near 1,318 (2nd chart below).

Momentum Rider’s Key Investor Chart (Managing Your Portfolio vs. Moving Averages)

The S&P 500 closed today below its 20 and 150 SMA which are both near 1,318. Being below the 150 SMA on the S&P 500 is still bearish and it is also 46 points below the critical 50 SMA. Even a move back above 1325 is still in a caution area for investors with a recommended reduced equity exposure level (i.e. still below the 50 SMA)

The bulls will try to spin the Fed’s comments positively to push up towards the 50 SMA near 1360 and the bears will try to take the market back down to its 200 SMA at 1283 to erase today’s gains. The 20 SMA (1,318) can be a strong resistance trendline, especially when joined by another big moving average like the 150 SMA. It will be interesting trading in the next few days and into next week.

Investor Chart with Technical Analysis and Key Battle Levels:

Nothing fundamentally changed today except for a technical market bounce based on several rumors. Until details are provided by the Fed about QE3 or specific details are released about a European plan for their debt and banks, MR’s defensive and cautious position won’t change. For now, it was only one big short squeeze day from a very oversold condition that probably won’t have any legs. Only time will tell.

Investor Notes:

The caution alert for retirement accounts and investors is still present. Selling more equities to protect from more heavy selling is prudent at this time, especially if you can take advantage of selling at higher prices during a market bounce. Make sure to be ready to sell even more in case the Euro completely unravels and takes the markets down hard.

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CEO Jalexa Trading Consultants, LLC

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This BLOG POST is brought to you by the publishers at Jalexa Trading Consultants, L.L.C. Nothing in this post should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. Any investments recommended in this blog post or through any of its advertisements should be made only after consulting with your investment professionals and only after reviewing the financial statements of the company or investment.

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Monday, June 4, 2012

Bear Market Is Here

Stock Market Cliff | Bear Market

Last week was a horrible week for markets and it ended on the worst day of the year in 2012. It is very bad fundamentally from a Europe debt and currency standpoint and from a slow growth and double dip recession view. Spain and Greece are in deep trouble and there don’t seem to be any strong and practical solutions coming forward anytime soon.

And, it is also in a very bad state based on the charts using technical analysis. Whenever a market loses more than 10%, it is a bear market by our standard. The S&P 500 has now lost 10.5% from the high on April 2, 2012. It is also extremely bearish when the markets close below their 200 and 250 SMAs. That happened on Friday on all 3 major US markets. The heavy selloff was fueled by a terrible US jobs report. The Labor Department reported the U.S. added a paltry 69,000 jobs last month falling well short of estimates calling for an increase of 160,000. The unemployment rate moved up from 8.1% to 8.2%.

The only ray of hope this week is that there is typically a bounce around these moving averages on the first level test so a few bulls may be lurking in the short term. However, if the markets close this week without the ability to get any buying above the 200 and 250 SMAs, then a repeat of the steep summer drops from 2010, 2011, and maybe even 2008 are likely and can’t be ruled out. From our studies in technical analysis, breaking through these 2 key moving averages can be like dropping off a cliff with quick and heavy selling pressure.

The Europeans are simply moving way too slow for investors. A big European meeting is happening at a June 28-29 EU summit, but that may be too late. German Chancellor Angela Merkel is now pressing for a central authority to manage euro area finances, and major new powers for the European Commission, European Parliament and European Court of Justice. She is also seeking a coordinated European approach to reforming labor markets, social security systems and tax policies. Until states agree to these steps, the officials say Berlin will refuse to consider other initiatives like joint euro zone bonds or a “banking union” with cross-border deposit guarantees. That kind of strong and unreasonable stance just won’t work for the markets. Finally, Germany’s insistence on gold bullion as collateral for supporting debt relief measures kicked off a strong gold rally on Friday.

The European politicians and the ECB need to act very soon if they want to help lessen the severity of what could be another financial collapse later this year or possibly much sooner. It is hard to predict at this point how it would compare to 2008 but it definitely will crush investors with too much equity exposure. It is not too early to start playing defense, raising more cash, and reducing equity risk.

As long as the Euro currency keeps falling and Europe has bank runs, stock markets are at a huge risk for a sharp selloff. It could happen anytime, it could involve a massive down day, and the depth could be 10% to 30% or more over the next several months if the right safety measures by the world’s central banks and funding organizations aren’t taken. Continue to RAISE CASH andREDUCE EQUITIES.

Here are the key levels for the S&P 500. More weakness this week could create a technical bounce between 1250 and 1260 but selling probably resumes after that without any positive European news.

More Selling Ahead:

Power Stock Picks:

MR is still looking at shorts. Here are a few more in addition to last week’s picks.

Investor Notes:

Gold and silver had strong bounces late last week and they may have higher to go in the short term. Oil is still looking for a bottom and investors can scale in on any more weakness a little at a time. The caution alert for retirement accounts and investors is still present. Selling more equities to protect from more heavy selling is prudent at this time, especially if you can take advantage of selling at higher prices during a market bounce. Make sure to be ready to sell even more in case the Euro completely unravels and takes the markets down hard.

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Friday, May 18, 2012

Stock Market Caution Alert

Stock Market Update Caution Alert

Gold and silver bounced up today as we expected from being oversold and with some short covering. Hopefully they are putting in a bottom and base now. Natural gas sold off early but recovered and unleaded gasoline and WTI Crude Oil held steady. We are still looking for a bounce for gas and oil fairly soon as well.

As for the US markets, the DJIA was up almost 90 points in the futures last night and a good bounce seemed likely today. Unfortunately more scares of runs on European banks and poor US domestic data this morning gave the short sellers ammunition. The very oversold markets continued to move towards the support target we expected near 1,300 on the S&P 500 – just much faster than anticipated.

The problem now is that there are very few buyers willing to step in front of the cascade down. It has the earmarks of some panic selling from funds to avoid the big 6 week stock market losses that we had the last 2 years (May 1 to June 16).

The only positive as we indicated last night is that our oversold indicators are hitting the buy triggers that could start a short squeeze back up starting tomorrow. But the weekend is always dangerous to hold longs with this negative cycle in place.

Facebook’s IPO could help trigger some upside stock market momentum tomorrow but our S&P 500 forecast points to a move lower to the 1,285 to 1,275 area (1,279 is the 200 SMA and next strong support). That would complete the Head and Shoulders Pattern retrace that we have been showing on charts for several weeks. It may happen next week without any good European news – like guaranteed deposits in banks, etc.

We wish we had better news but the Eurozone is unraveling and there doesn’t seem to be any answer close at hand. It could get much worse from here so scaling back even more on your equity exposure on any bounce is recommended. Cash is always a good position until more certainty comes in.

STOCK MARKET CAUTION IS WARRANTED FOR NOW!

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Head and Shoulders Pattern | May Selling

Another Technical Analysis Lesson – Head and Shoulders Pattern

Note: Reprinted from April 25, 2012 - Wouldn't this be useful to know for your trading and investing? This forecast was dead on the money.

MR’s forecast of more market chop around the 50 SMA this week has played out so far. The criss-cross of the 50 SMA happened for the 10^th time today on the S&P 500 in 12 days. Our bias was bearish going into the week on Sunday night and Monday was down 185 Dow points near its low. Since then, it did bounce up off that low and actually finished back above its 20 and 50 SMA today after Apple’s blowout surprise earnings. And yes, the heavy selling in Apple Inc. going into earnings clearly had the analysts and many short sellers caught on the wrong side.

At this point, the three major US markets were able to recapture their key 50 SMAs as well as their most important breakout levels from the last 30 days. COMP at 3,029 (>3,000); S&P 500 at 1,390 (> 1,375); and DJIA at 13,090 (>13,000). However, the markets were on the brink of a big selloff and technical breakdown on Monday (see later chart). The only savior was Apple’s blowout earnings today which caused yet another short squeeze up for the markets.

The chart from Sunday’s newsletter is still valid even after today’s strong close at 1390.

Bullish Above 1400 and Bearish Below 1370

Technical Analysis – May Selling Could Be Coming Again with a Head and Shoulders Breakdown

The markets were on the brink of a big technical breakdown from a Head and Shoulder’s pattern (see graph below from Monday) but they survived with Apple’s help. We have outlined this pattern numerous times before and recently showed a bullish Inverse Head and Shoulders pattern that could be forming in gold and silver (Technical Analysis | Gold and Silver).

Taking a look at the graph below, the neckline was briefly breached on Monday but the market was able to recover back above it. If the neckline is eventually breached with volume and momentum, the lower target is a 6% drop down to 1283 on the S&P 500 (8% from here). The neckline is around the 1368 to 1371 level now.

A Confirmed Neckline Breakdown Is Probable for May

The reason for our bearish bias going into May has been made clear before in our recent newsletters. A breakdown could repeat again in May based on the last 2 years’ history in 2010 and 2011 as the charts show below. Here are the charts from the last 2 years for the 6 week period from late April to the middle part of June.

Big Selling in May and Early June 2010 (15% Loss)

Big Selling in May and Early June 2011 (8% Loss)

The institutions have been burned badly the last two years in May and will surely protect this time around on any hint that a downtrend is starting again. In fact, had Apple missed its earnings last night, there is no doubt the heavy selling would already be in full swing going into May.

The bottom line is that we continue to stress caution and recommend fewer equities here. There is an increased downside risk based on recent past history and the Head and Shoulders pattern shown above.

For now we will wait to post more of our HOT Stocks in the momentum stock investor series. For the power stock picks tonight, MR is going to select 10 shorts that could fall quickly if selling kicks in again and into May as history would predict.

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Good luck in your trading and investing,

Keith Hugenberg

CEO Jalexa Trading Consultants, LLC

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Friday, March 16, 2012

Technical Analysis | Gold and Silver

Gold and Silver Technical Analysis

In this gold and silver investment blog, Momentum Rider will be demonstrating a technical analysis pattern called an Inverse Head and Shoulders pattern. It is a bullish reversal pattern that occurs after a strong downtrend and it can produce a very powerful uptrend. Normally, the Inverse Head and Shoulders pattern is much smaller in time duration and in amplitude than the one we will be illustrating in gold and silver. But, as we explained in a previous blog on gold and silver, this pattern is part of a very large consolidation phase for the precious metals (see Gold and Silver To Shine Brightly in 2012). The gold and silver Inverse Head and Shoulders patterns will have significant upside energy because of their large size if they finally break out above their necklines. This will be explained in more depth later in the article.

First, it is worth spending some time telling you more information about what this pattern is. In addition, we will be using some specific examples that should prove useful for your understanding. The Inverse Head and Shoulders pattern is a chart pattern used in technical analysis that predicts the strong reversal of a downtrend. The Inverse H&S pattern is broken down into three smaller parts. Note that you may also see this pattern named an “Inverted Head and Shoulders” or a “Head and Shoulders Bottom”.

The first part of the pattern is where the price falls to a low or trough from a downtrend and then rises back up a percentage of the previous downtrend (left shoulder). The second part consists of a fall to a lower price than the first trough low and then another rise back up (head). The third part of the pattern is a fall from the uptrend from part 2 that does not go as low as the second trough or the head (right shoulder). The right shoulder low frequently doesn’t get as low as the left shoulder low. Finally, the rise from the third trough low takes it to a breakout line connecting the highs from the left shoulder and right shoulder (neckline). Typically the average volume in the shoulders is lower than average volume in the head phase. Two chart examples are shown below:

Example 1: Breakout Above the Neckline On Volume (Safer Entry With Pattern Confirmation)

There are two recommended ways to take advantage of the powerful Inverse Head and Shoulders pattern. The first is to identify the pattern early and to buy in the trough of the right shoulder. The second way is to wait for a high volume breakout of the neckline. Playing the breakout is generally a safer entry with full confirmation of the pattern. Buying in the right shoulder trough has more risk but it can be more profitable because of the lower price entry.

The chart below is an example of an Inverse Head and Shoulders pattern that Momentum Rider identified for subscribers in the middle of 2010. Obviously, it was very successful and profitable for us. It was part of a bottoming process for the S&P 500 similar to what gold and silver looks like right now. Note that this pattern is fairly deep and long in duration at about 4.5 months. That large depth and long duration helped to provide a very powerful move up that followed the breakout from the neckline.

Example 2: Breakout Above the Neckline a With Strong Run Up in 2010 for the S&P 500

Technical Analysis 2

Technical Analysis Charts – Consolidation and Energy Buildup Phase:

Momentum Rider has written numerous recent blogs supporting much higher prices for gold and silver in 2012 and for several years to come. In fact, we already explained the concept of consolidation phases and energy storage and buildup for bigger moves. Here is a quick snapshot of those previously published charts from our March 8th blog. This concept is important to understand because it supports our higher risk recommendation of accumulating in the right shoulder price areas without waiting for the neckline breakout on high volume.

Buying gold and silver right now does add risk to the trade because the right shoulder trough could breakdown. If the right shoulder price goes below the head’s low price, then the pattern is negated and the bigger move up in silver and gold may not happen as we anticipate.

Silver Energy Buildup Phase (Technical Analysis):

Gold Energy Buildup Phase (Technical Analysis):

Technical Analysis Charts – Inverse Head and Shoulders Pattern

Because of our fundamental and macro event premise that gold and silver will go higher in 2012 and for years to come, Momentum Rider believes that there is a bullish Inverse Head and Shoulders pattern forming in both gold and silver. Furthermore, for reasons that we discussed above and in our previous blogs on this subject, MR is recommending that you start accumulating gold and silver during this choppy period of consolidation in the right shoulder patterns right now.

Refer to the charts below for the recommended accumulation price range for your gold and silver buys. Also, you can add to your long positions after a breakout above the necklines as noted on the charts.

For gold, the accumulation range is between $1,585 and $1,740 with a neckline breakout level of $1,775.

For silver the accumulation range is between $29 and $34 with a neckline breakout level of $36.

MR recommends that you start accumulating gold and silver in the form of ETFs, mining stocks, coins, jewelry, or even bars if you have a good way of buying and storing the actual metal. But please be careful with any company you buy gold and silver from and those companies that claim they will store it for you.

Another parabolic move in silver and gold prices similar to what happened in 2010 and 2011 is very probable and it could be even bigger this time around. Using technical analysis studies and past experiences with large Inverse Head and Shoulders patterns in markets, the next moves up in gold and silver could start in April and the duration and size of the moves could be substantial.

The simplest and probably the safest method to accumulate gold and silver is to buy the ETFs. The Silver ETFs MR likes are SLV or SIVR and the Gold ETFs are GLD or IAU. Start buying in small amounts right now and on any pullbacks before the big momentum move really kicks in. Watch for Momentum Rider’s frequent updates on gold and silver prices in blogs and in the MR Power Stock Newsletters.

Keep learning more about technical analysis and look out for this very powerful Inverse Head and Shoulders pattern in the future. Take advantage of this investment opportunity in gold and silver as it could end up being one of the best things you could do for your retirement account in 2012.

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Thursday, March 15, 2012

Stock Market Breakout Holds | Commodity Value Stocks

Technical Breakout Holds and Commodity Value Stocks

The market bulls overcame the key levels finally this week with a strong breakout yesterday. After numerous failures at these levels and a selling scare last week, the buyers reacted positively to the Fed comments yesterday along with some important bullish action in the financials.

We have been watching for 5 things to get more bullish overall about the market at these highs. It is one thing to get near old highs but it is another to get a breakout to new highs. The rule of thumb in markets is that new highs usually lead to more upside.

The five things we are watching to give us a bit more confidence about the technical breakout are:

1) The major markets need to hold their breakout levels (1,375 S&P 500; 3,000 COMP; 13,000 DJIA) – today was a good pause and hold day above them and these levels NEED TO HOLD going forward.
2) The financials have to participate for a more sustained move higher – yesterday was a huge breakout technically for financial stocks and it was good for investor confidence with a passing of their stress tests.
3) The DOW transports and the Russell 2000 have bounced strongly to close the huge divergence with the rest of the markets. This had to happen to push higher instead of having the major markets be pulled down with their recent weakness.
4) Oil prices needed to stabilize and that has happened in the last 5 days.
5) The long term treasuries needed to show significant weakness (selling) to signal the big institutions are finally more comfortable about putting money back to work in equities. That happened in a big way the last 2 days with strong selling and a breakdown in the TLT below the 200 SMA. The TLT could have small bounces from here but the intermediate trend is down and that is the key.

It has been an impressive move up of 6 days in a row after the selloff. However, once again we can’t provide an all clear just yet. In the short term, AAPL has gone parabolic again at close to $600 and the VIX bounced strongly today suggesting a pullback is close. A minor pullback to relieve the overbought conditions would be natural and retesting the key breakout levels for support is often very typical price action. MR has a hold recommendation right now.

Using the Power Stocks Table:
(1) Risk: Conservative (Cons); Moderate (Mod); Aggressive (Aggr); Speculative (Spec)
(2) Stop: Typically use a 3 to 4% closing stop below the entry price
(3) Trailing Stops: Use the 10 EMA (Swing) or 20 SMA (Short Term Trader) for protecting gains once above it; SMA = Daily Simple Moving Avg; EMA = Daily Exponential Moving Avg.

Commodity Value Stocks:

Many commodity stocks in materials, energy, and agriculture and related stocks in railroads and shipping are still at some very attractive valuations. The statistics so far coming out of the US in 2012 are much better across the board. China’s growth is slowing but it is still close to 8%, and the reports out of Europe are only indicating a mild recession.

And, because oil and some refined products are going up in price, many of the energy stocks should do better going forward with earnings. This is the second list of stocks in our investor series on value stocks in these sectors. This is an excellent investment opportunity to pick up some of these stocks at real bargain prices if you hold them for 12 months or more.

Top Commodity Value Stocks:

Investor Notes:

Gold and Silver:

Gold and silver pulled back a bit after the Fed’s release and their comments this week. Investors took the news as a reduced probability of QE3 and it was supportive of the dollar in the short term. But both gold and silver are still holding their longer term trendlines and are actually tracing out bullish inverted Head and Shoulders patterns. These are strong patterns for big moves up if they play out and our recent blogs support higher prices later in 2012. It may take some patience in the short term with some choppy price action but scaling in on weakness is still prudent for long term investors in our opinion.

MR will publish a blog later this week on the inverted head and shoulders patterns along with a list of some beaten down and good value plays in the gold and silver miners. Check our our recent blogs.

Gold and Silver Game Changers

Gold and Silver Investment Supplies Dwindling

Long Term Treasuries

Also, we wrote a very important blog in February about how the Long Term Treasury Bond yields could only go up. We were in fact correct as the TLT has been mostly lower since that blog. And, the last 2 days finally started the heavy selling that we forecasted for 2012. This is good for equities as this money will be put to work in stocks and it is a vote of confidence that things are getting better. Read that earlier post and look to buy the TBT (Ultrashort Treasury) for bigger gains this year.

Time To Short Long Term Treasury Bonds – A Safe Bet

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