The Daily Dose of Trading Comments

Upside down, boy you turn me, inside out, and round and round. The market was rocking to the oldies today as if flipped up, then down, then up, then down. Skittish in a word as we head into tomorrow news and then Friday. A week ago the market started a move higher that has, in most eyes, exceeded the expectations. With earnings looming as well as the eco news, my best guess is that tomorrow will be another day of volatility, up and down then round and round again. The range will likely be contained but the prices will likely gyrate. We start with the first time claims, which has become mostly a non-event and then 30 minutes into trading get construction spending and the ISM index. Neither has high expectations but the ISM will get the majority of the attention as it's for March. So, we have the early eco news that could move the markets and thus you can't get too comfortable early; in either direction.

Finally, as I reflect on the final numbers, we did see increased volume today and again it was on a down day. That's not good as you know. The good news is that breadth was positive on both the primary exchanges, but down volume came in higher on the NASDAQ. So, we continue to be hit with mixed signals.

As March comes to a close we reflect a bit. It started promising with a nice run in the first week but then the correction and the fact that we didn't cut exposure the first day of that correction and we had a very ugly second week. The remainder of the month has been clawing back to finish down but not too far from our yearly highs. The average of the indexes, however, are likely to show red for the quarter although I've yet to do the calculations. Needless to say, we have easily outperformed the indexes and have a fairly decent year underway again. Now the hard part, as they say. The second quarter has been difficult for us historically and we will have to be on our toes to avoid the pitfalls. Namely, we need to be very careful in our short positions and keep them mainly to the indexes and we have to avoid holding into earnings on most issues. That and keeping an ear to the ground on the general mood of the market are all of importance. We want to finish the second quarter this year with another 10% gain and set ourselves up for a big year. It is our belief that we should be able to pull 40 to 50% from the market year-over-year on a consistent basis and now that we are concentrating strictly on our trading, we shall see if this belief can be borne out.

Hopefully this first quarter was good one for you. I wish you the best on the next one. Buckle up and get ready to rock as there are enough mixed currents directly ahead to make any trader's head swirl. Good night.

As I round out the books heading into the close, I put the SPY short back on at a better price. We caught almost the top on the NEM push to take some decent day profits on a flip and we are holding the new adds to give them a chance to work. It's been a long day and it sure seems I've worked harder for the small gains that were to be had. We have repositioned a bit though and that's the name of the game ... constantly positioning to the changing events and charts.

And here's one more to consider if you are looking for a little long exposure; LNDC. Looks ready to break for new highs again. You can stop out rather cheap if wrong.

Although I'm remaining rather cautious, I keep scanning for potential long plays. I just took down a little AKS which has been building a base for quite a while, broke out this morning on good volume and has trailed back lower off longer term resistance. It's down near it's breakout point at around $6 here and looks like a decent buying opportunity. Just trying out a little.

Also keep dinking around with the gold. The spot price was so strong today and with NEM showing weakness in the face of it (there's talk of a takeover of Barrick Gold) I couldn't help but buy back what I sold earlier at a cheaper price. May or may not hold the added overnight as a flip might make more sense. Will see how the Asian markets open into the close.

I see the SPX pushing to green as I type. There's a lot of high expectations going into the next couple days. I'm not sure what it will bring, but I'm doing my best to stay reasonably cautious but you can't ignore everything and be too pessimistic. We can always sell out if we have to. With the cost of a sell ticket at $1 per 100 shares, transaction costs are nothing compared to exposure.

There are so many cross currents and differing views here that you can't help but believe one side or the other is going to get squashed in the coming week or two. The key battle lines are drawn and I'm sure stops lie on both sides of those lines (support and resistance on the various indexes). While I'm unwilling to put much money on either side in front of the fireworks, I plan to trade contrary to the fireworks if they play out to the upside. In other words, if we can stretch back towards the recent highs without much of a rest (which has happened so far) and without the big confirmation day with blow out volume, then I'd like to short into that strength. It looks like that kind of setup is playing out here. Today we are still not getting any follow through to the downside although the market was presented with the opportunity. It's that old adage again that if they can't take them down, well, then take them up. With the way the market is acting here with a little over a couple hours to go, that appears to be what's brewing.

I did try to work my way back into some NEM on the weakness down but just missed the buy near the lows. With gold and silver at or near new highs, it's hard to step away from the gravy train.

I must be starting to lose it as I forgot to mention the ECB potential for a rate cut tomorrow which could also pressure the metals. Earlier I failed to mention the PMI as the other eco news this morning. Juggling a number of things today as I recover from the time off. Oh well, no need to give excuses.

After a flurry of activity this morning, I've been pretty much sitting on my hands again, unwilling to do much more in front of the news to come over the next couple of days. Some wild gyrations today in the commodities markets with oil, the metals bouncing around, the dollar getting beat up. The volatility there could be a precursor to the stock markets. You can make a lot of money in volatile markets ... if you hold the winning straw that is!

The pattern of higher volume on selling than buying continues. I see it again today although we are not talking about large variances, they are there although somewhat subtle. The buying is also there though as witnessed this morning as the 1123 area on the SPX becomes the fulcrum where the swings occur. Having captured that area yesterday, the bulls are defending it today and they bought weakness back to there. Although I want to act, I know that being patient here and waiting for a more extreme reading is the proper action to take. For example, after taking partial profits in the metals, I look at the strong cash prices and the bludgeoned dollar and want to jump back in and buy on the weakness. Problem is, I know that the metals could take a bath come Friday's employment number. The stocks are probably showing some weakness today as a result of that possibility. So, we take some profits off and leave some on in case they want to push higher. If they come back in and still look good, then we can add them back. If they keep pushing higher, well then we simply ride what we kept.

At this point, unless you have a better feel for where this market is going short term, it's better to be safe than sorry. That's what I'm trying to do.

Trying to get your arms around this market and still feel comfortable is not an easy task. There are caveats to almost every scenario. I've been raising cash, booking partial profits and generally removing risk from the portfolio. Most of my longs are in the metals still and I'm not going to do much more than what I've already done. The only short left on the books is MAT for now. With the market taking that hit on the eco news, I lifted the other index short. We will look to put them back out again .... higher though.

Market didn't like the one piece of eco news today on factory orders and sold down in short order. I pulled one of the two early trades, took some partial profits on some metals and, in general, am getting a little lighter. Let's see what kind of buying we see now that we are finally getting some real weakness.

Although I am wanting to play it safe here, there were two stocks I had to pull the trigger on and buy a little this morning. FSH and ELBO were calling. Both look ready to bust higher. I've started positions in both and have reasonably tight stops in case I'm wrong.

I am looking to take some profits in the metals today or tomorrow. Also watching the indexes to decide whether to add to the shorts or take some off. Depends on the market.

Futures indicated up despite rising oil prices, a falling dollar and rising metals. Lot's of hope being pinned on that employment number and the soon to come earnings season. Lot's of hope.

One of the keys every 3 months is to figure out what the mood is and to try and guage how earnings are to be received. Will they rev up the buying engines are provide an excuse to let a few more shares go? What is the mood this time around?

With the markets having sold off prior to earnings, you have the setup for a rise. Although I'm quite concerned that this market is going to find a problem with the rise it's having here I'm quite aware that this market has had a bull move for a long time and as I've said earlier, it may not want to die that quickly. With earnings set to start up next week and with the employment numbers this Friday, we could well be setting up for another surge higher here despite numerous reasons that we should not.

Personally, I'm looking to get more into cash as a result. I'm unwilling to be big at this juncture either way and would rather wait mostly on the sidelines for the dust to clear and to see how the early earnings numbers are treated. As much as I would like to pick on a few charts (long and short), I'm inclined to guarantee capital preservation for now. Wish I had a better read, but I don't.

So much for a down day. Rather than a weak finish, when it became clear that they couldn't take them down, they marked them up instead. It was another low volume move higher, the kind we have gotten used to. Volume actually shrunk again from yesterday which was down from last Thursday's big advance which itself was below average. You catch the drift. I've said it enough.

Problem with this market is that after such a long run higher, there are many who feel they need to own shares for the next leg up and many more who are not willing to part with what they have lest they move higher and they can't get back in. There's also the earning season that is coming on and the expectations that it will be better than expected. Add to it, the employment number due out Friday which has to be showing job growth for sure by now.

Talking of the employment number, what will happen if it's a big number? Do we rally because we are finally comfirming the robust economy or do we quickly start to consider that the Fed is probably ready to raise interest rates? What will happen if it's just so-so and of course, if it disappoints. Seems to me that, not unlike last month, we have the same delimna in that a too strong or a weak number is probably not good. A just right number allows us to muddle around longer. Maybe I'm reading it wrong and, to some extent, what happens is dependent on what happens the next couple days leading into it. Given what took place today, you get the feeling that they this market could run a bit higher heading into that number. An up day Monday and no real pullback the following day makes you think that there's the tendency to take them up on Wednesday. We will have to wait and see. I'm not doing much yet. Let's let the market show us if it can recapture 1130 with volume. If not, I'm inclined to do a little more shorting and trimming on the long side into that report.

So the market finally kills my QQQ trade for some small profits. So be it. It's that kind of day isn't it. A good day for the bullish forces but another day where the market moves higher and we get no volume. This will have to change or the direction will indeed change. For now we must be patient, play smallish, and play both sides. Given today I'm thinking that tomorrow we may see some follow through buying as there is little pressure to take stocks lower. Seems as if the bears want to load up higher that these price points. Maybe they are a little gunshy in that this market has been in a bull run for quite some time and maybe that was just a correction before it resumes it's run. Maybe ... just maybe!

Enough of that! Keep your head straight. Until the market proves it can go up and do so on volume, you must remain skeptical. I am.

In the bigger picture (read a week or so), the fact that the market is holding in here with no real losses today suggests that some consolidation is taking place and that, on the surface, is a bit bullish. I'm still concerned that unless we see volume on a push higher that this attempted move higher will fail, but that can take a while to play out and the price can move even higher while we press against it.

On the shorter term, I've inched my QQQ stops down a bit to lock in some small gains if it starts to bump up here. Very quiet day and I'm not really looking to add to positions one way or the other here.

We are starting to see some slippage finally but unfortunately that slippage is across the boards, including my metals. Nevertheless, we have done nothing today and continue to wait and let the trades we have on the boards do their thing. Sometimes you simply have to wait.

With the passage of time this morning, we see a little improvement in the internals. I've just put a stop in on the QQQ short at even money and will reduce exposure just to the SPX if that is tagged. If they can't take it down, they may just want to move the other direction. I'll bow out and look to short a bit later if that is the case. I'd rather hold cash than exposure at this juncture.

We are seeing some real strength in the precious metals today as gold is poking up around it's highs and silver is getting the royal treatment as well. If PAAS breaks through the $17.60 level, then a push to $18+ comes quickly I suspect. I'll probably trim a bit there as then we have the resistance of old highs. Maybe a 1/3rd of the holding that we will try and buy back on a push back to the (new support) of $17.60.

There is a dearth of volume today and given that, I'm looking for a slow dribble down most of the day. The SOX is weak and that's the main mover on the NASDAQ. I'm going to go take a jog so as to not do something stupid. Best to just wait this out.

So both numbers (production and sentiment) better than expected. We get the bump up followed by an immediate move back a bit lower. Looks like with the thin market (no volume) the smallest of things are bigger than life. Smells like a down day. The question will be to what degree.

We start lower and the push to green in front of the sentiment numbers. A bullish little start to the day. I'm maintaining a low profile here as the volatility could definitely increase. Let's give the market the benefit of the doubt and see whether in can muster the volume to support the higher prices.

It's usually the case that those who write, choose to write about the positives. With warning season upon us, I'd like to use an example of a failure rather than a success to show that earnings season can cut both ways.

Yesterday, I began trailing some select stocks more closely with stops. ADSK was one of those. It had began moving higher and was breaking out and knowing that earnings preannoucements were on the doorstep, I didn't want to get caught in a free fall. Got stopped out late yesterday as a result. Oops. What about a free climb?

This morning they preannounce better than expected numbers and are gapping higher. Missed opportunity. So what do you do in such a case? Ideally, you scale in and scale out so that you book some gains and leave some on the table for such a situation. So why didn't I do that? A mistake. Although I was carrying only 150 shares, I could have scaled out on half. History is a great teacher if care to listen. It's telling us that scaling in and out is the preferred method unless your beliefs are strong. We need to listen.

The pre-markets are showing red to begin the day. Metals are up and the dollar slightly down again. There is a consumer confidence number a half hour into the trading day and the expectations are down on it so I doubt it will cause much of a ripple. Volume has been the big tell of late and I'd keep my eye on it. For direction, the NASDAQ is the leader with the SMH and BBH the lead dogs there.

ACe Comment....copper

I have been reading several comments regarding China recently, and one thing seems certain to me: this economy will be slowing down from its current rate of growth. When the Chinese Government want something, they usually get it, and this is their desire. They want to avoid the situation japan found itself in once the bubble burst, and the banking system held back the economy (still does) for a decade or two. The Central Bank raised the interest rate it charges banks for loans from 2.7% to 3.33%, and also boosted reserve requirements. "Other steps" will follow. The implications reach far and wide. For example, the Japanese economy is now as much dependent on China as it is on America, as is the rest of Asia. As John Snow confirmed yesterday, the Chinese will float their currency in 2006. That means no more buying dollars to keep the peg going, and no more buying US T-bonds to spend those dollars. Between now and 2006, the Yuan will have to be revalued, so we will get a steady reduction in T-bond buying. Keep an eye on this situation.
Commodities have surged over the last year, mainly on the back of demand from China. If that is set to slow, what chance a fall in these prices? Copper is a great example of a price waiting to fall. Check out the chart.
ACe
copper - 4 year chart

ACe Talking..........off to the asylum

I may not be able to continue these comments too much longer, as there is a strong possibility that I may be locked away soon. I think I may be suffering from some kind of mental illness. I have to conclude this after meeting with a financial advisor yesterday (not for me of course, as I make my own decisions, but my Dad wanted me to attend with him, just in case he got talked into some crap investment...like last time!). The Advisor, let's call him "barst" (won't reveal true name), was talking the merits of equity investment, always giving positive returns, FTSE up 30% last year, and all that usual stuff. I threw in the suggestion that shares might actually go down or sideways for another 15 years, when the conversation stopped. Barst looked at me as if I was a complete looney. Men in white coats appeared at the door. The office fell silent. I would say that the pause lasted only about 10 or 15 secs, as old Barst stared at me in disbelief. I broke the silence by asking him if he studied stock market history, which, over the past 100 years, has given us 18 year periods of bull and bear markets. "I can't see that happening" he said, "shares are a good investment. The FTSE was up 30% last year". Actually, it was up only 25%, and that came from a level that was 50% below the highs of 2000, but I really wasn't in the mood for a fight. There were too many people in suits staring at me, ready to dive in with some clever fact or figure. I prefer to wait for my moment, and then rub their noses in it.
This is just one example. The blokes in the suits selling policies, the bloke on the telly selling shares, the broker selling anything to pay for the next skiing trip. People like me are treated like criminals (some prefer to call me a "bear", some say "nutter", some say some very rude things. In truth, I only say what I see. That's just offering an opinion. I see history repeating itself. So what the hell do you want me to say? My style of broking was too honest, hence the fact that I am now sitting at home). That's how I feel sometimes. Putting anything besides a positive case forward is on a par to murder nowadays. But who do you care to believe? The bloke on the telly, the broker, old barst? Or should you listen to ACe, Buffett, Frosty, Rogers, "the truth" Goodman, Templeton, Soros and Gross? You still have time to make a decision, but remember, if you go with my team, you will not be popular. You could even end up being locked away for your beliefs. This is a time to be strong.
Not much direction overseas this morning, but we have news of our first suspected SARS cases in the UK, and also some arrests over terror concerns. Just a reminder that risk can still play a part.
We have had our rally back to key levels now, with the S+P 500 at the point where we either see 1150-60 again or slip back. 1123-5 is the key area for me. If we are to follow that Nikkei 1993 example, then we still have a week or 3 to play with before a more serious decline.
I hope I am around to see that.
ACe

No sooner than it looked as if this market was going into give up mode the market instead stood up and pressed the shorts into the close. One of those short presses came in OFIX, a somewhat thinly traded stock that I was trying to work for a short. Nice setup, bad result as they pressed it right past the down trend line and forced me to cover for a nice loss on the day. Not very nice at all.

The markets are being pushed and pulled around by the desire for many to call this the pullback that has to be bought and others wanting to believe that it is something more. Being in the latter camp, and being totally unimpressed by the total volume today. The breadth remained quite positive with a 2:1 AD line and up volume swamping down. With volume light though you have to be careful here if you are trying to jump on the bull band wagon. That's clearly the way I see it.

So the jury is still out and right or wrong, I'm more comfortable now in my positioning. This week promises to offer volatility, if nothing else, as we have eco numbers, the possibility of warnings and a big employment number to wrap things up Friday. See you tomorrow.

It's always interesting to see just how differently different commentators and traders can view the market. I see a lot of folks wanting to view this as the buying opportunity. Maybe I'm just missing the bigger picture, but I can't see it ... at least not yet. There's a lot of resistance just overhead and to move from bearish to bullish that quickly when there is no evidence of a pickup in volume to support the move seems a bit premature.

Although I remain net long in the account, the bulk of that long is now in precious metals and we have added some shorts to the account again after a long (and truly missed) absence. Sure there's the potential for this to play out even higher still, but given the 3 possible scenarios I was looking at coming into today, selling/shorting into strength without volume is the scenario that showed up and that's what we have done.

After a morning of no pullbacks, we are finally starting to see some weakness in the markets. The fact that we have moved right back to the first levels of reasonable resistance with a push on no real volume pickup and then sat there probably gives pause to some to book their gains. Don't know that it has more significance than that for now. Natural to book gains if you feel that the market isn't really running away from you. Fear is typically what drives markets significantly farther than one would expect; that is the fear of not catching the run and the fear of getting run over. This morning it seemed to be the former as I had alluded to earlier. After a long run higher for multiple months, the fear of missing the next big run becomes common place when the market starts to move higher again. Andrew referred to this in his posts last week. It's that old problem of not wanting to buy when everyone is selling and wanting to buy when everyone is buying. The herd mentality.

I've ended up taking some profits this morning and putting out some shorts. We were able to catch some dollars on the move higher and I'm not willing to let them slip away so easily this time. Now, having seen the market move higher and not seeing what I believe to be necessary to turn the market higher still at this juncture, we put out some shorts to hedge ourselves and look to gain on some retracing which I suspect is to come soon. Just trying to ease back into trading here and position for the coming days. March looks like it will go out with losses in our portfolio and there's no reason to do anything crazy to try and change that. Remember, we have a good year going and we need to position for the next move, not the one we missed.

Just putting my first batch of index shorts into play. I'm quite concerned over the quality of this rally. I've also pulled up my stops where it makes sense on existing longs. Although there are some definite positives out there, the continued lack of volume on forays higher continues to plague this market and makes me skeptical of today's strength back into the first line of resistance.

Although the boards are green; the breadth is good; the volume is still tepid. I just don't see volume expansion here. We are seeing the scenario where we burst higher to resistance on non-expanding volume and not building a base. I started one short so far and will be looking to short the indexes on a further move into resistance. Starting to spread the bets again on both sides of the table.

The opening had some follow through and now we will soon see what the first dip looks like. So far so good if you are long. I'm still cautious though as the volume isn't that impressive.

Futures are up smartly this morning as it looks like the market wants to try and put on another show like last Thursday. I'm skeptical about Monday morning strength and would rather stand aside instead of chasing anything. I did add to NEM pre-opening. There was an interesting question on the boards about how to add to winning positions without increasing positional risk. I'm not sure I provided the answer that was sought but when I look at NEM and ask myself would I buy this stock here, the answer is yes. I ask that question independent of having shares already. When you get that kind of answer, then you attempt to purchase some more and, in doing so, you add to a winning hand. Gold has some opening weakness this morning and is sitting at breakout levels. I'm thinking it could make another move in here somewhere.

After flipping through charts and trying to get a sense of what happened last week, I'm going to be keying in on the SMH and the BBH as we attempt to ease back into trading. If these indexes can move higher and if we can get some decent early volume, then I'm willing to let existing positions climb a bit more and to hold off on any serious shorting a bit longer. Whether this bounce turns into something more than a dead cat bounce depends largely on follow through. Follow through can come as either a slow build higher on increasing volume or as a burst higher. The burst higher we have to consider trimming and putting out some short term shorts. A slow, building move has the chance of being more sustainable.

The primary reason for thinking that they could take these markets highers is expectations for earnings. Very little in the way of warnings out there so far although this is the prime candidate week for them. If they do not come, I would expect some continued dip buying. Of course the other part of the equation is the market has gotten the pullback it was looking for, or so it thinks. After a year of rising prices, to get into this market has been hard; especially lately. The missing the boat thought is still strong in the minds of participants. I find it hard to believe that they give up on that thought that easily.

ACe Talking.....briefly

European markets drifting higher. Asia flat to higher, with Taiwan the standout here, rising 5.5% (purely domestic reasons though). I am interested in the comments by the CEO of ST Micro (Europe's largest semiconductor company), who said this morning that he sees a sustained recovery next year due to demand from customers in the telecom, auto and consumer elecs business. He also does not see overcapacity in 2005. This could add weight to this rebound, and with SOX having corrected 18% from the highs, this could be the area to concentrate on should the bounce carry weight. Got my eyes open just in case. The NDX downtrend comes in at about 1460-80 area, and we may just see that if investors decide to buy back ahead of earnings season starting next week.
ACe

I've been doing some homework today and have came to the following conclusion:

- This market could go up or down

Now isn't that some real insight?

Seriously though, we are stuck in a downtrend and a press higher from here sets up a good shorting opportunity again for those willing to play that downtrend. SPX 1120 looks to be pretty good resistance. We didn't see any volume expansion on the big up day last Thursday and we are poised to fail at the 1120 area if that doesn't change. If it does change, then the 1140 move becomes more likely.

The NASDAQ though saw some volume expansion on Thursdays move higher and just as it led the rest of the indexes down, I wonder if it will now lead them higher with the listed issues being the laggard. 2010 or so is a good resistance area for the NASDAQ and unless we can hold the 1940 area and build a little base here going into the employment report on Friday, I'm not sure it can break through that area. So, if we get the charge ahead Monday or Tuesday, even with decent volume, I would want to short/sell some shares into that move thinking that resistance will hold. If we instead build a little base going sideways here and then catch a good employment report, then that downtrend line could be broken to the upside.

On the flip side, a failure around the 1930-1940 area, especially if accompanied by volume, would make me think a further retrenchment is being offered up. I believe the NASDAQ is the index to watch (and/or the NDX) over the listed issues right now. They will likely be the tell in the coming days.

Just getting back to town, looking over the portfolio and reading the great posts by Andrew last week. Also had to take care of a technical issue that made the site unavailable for some time. Not sure exactly how long but probably some of Friday and Saturday.

Although Andrew may make you take a deep breath with the long term pessimism espoused, his big picture beliefs are hard to dismiss as their is historical precedent. I have a hard time making money at the macro level and thus the contrast between Andrew and I are quite apparent as I work the charts on a much shorter time frame, but you will find both similarities and divergences between our thoughts.

For example, we do agree that the intermediate term trend is down now and that we need to position for that. We also agree that a good sized bounce will occur and likely take us back to the highs of a few weeks past. I can see his support levels and can see a few others between here and there. On the flip side, I'm willing to play certain long candidates in between these moves down where Andrew isn't. I would argue that the desire to keep buying into this market by the participants is rather strong, especially in front of earnings after a long bull market that has experienced a perceived short term normal correction. I find it hard to believe that the bulls out there, and there are many, can easily stand aside and not try to put there money to work in here. In fact, I would not be at all surprised to see them take us back to the 1140 area over the next couple weeks. To do that, Monday looks important as it will either confirm Thursday's move or dismiss it. To confirm, we need another rise with better volume.

As I look over more material tomorrow in an attempt to ready myself for the coming week of trading, I'll post further thoughts.

Thanks again to ACe for his time and effort to fill in last week with some great posts!

ACe Talking..part Two: Frosty's Theory:

These are weird times in the world of economics, as there seems to be a split between the inflation camp and the deflation camp. I have found it difficult to side with the deflation mob because of the amazing jump in prices of most raw materials, commodities (+oil) and stuff like shipping rates. That smells of inflation to me. However, a recent paper from Andy "Frosty" Frost, a prominent member of the award winning "Dinner Investment Club", has swayed me back towards the deflation camp.
The paper explains why the U.S. Economy will continue to struggle. For example, he says that at the peak of the boom in 2000, 66.5% of the U.S. population had jobs, compared to just 62% now (that's 6 million jobs less). He also mentions capacity utilisation, which stands at 76.6, down from 82% at the peak. In other words, there is a whole load of slack out there. So what about these price rises in commodities etc? Frosty's theory is that these are actually having deflationary consequences, by causing corporate America to cut back on wages and other worker benefits. It's also beginning to eat into profits, and will be more noticeable if the dollar stops weakening, which it has recently. He cites two examples in the car industry, namely Ford and GM. Corus (UK based EU steel maker) has joined other steelmakers by increasing prices, and this is estimated to reduce profits per car by appx $300 at each company. The profits per car at present are appx $462 at Ford, and $262 at GM, so a $300 cut is quite significant.
I think Frosty's theory is worth noting, and perhaps will explain why the economy will not stage a "normal" recovery for quite some time.

Economics aside, the market is holding onto the gains from yesterday, and is looking to climb back above the 100-day ma's. As I suggested before, we may continue this type of activity for a few weeks yet. No straight lines.....yet.
Have a good weekend. Normal service is resumed next week. If anyone has been reading this, I hope you have enjoyed it. If nobody is out there...what a waste of time!!
Good luck.
ACe

ACe Talking......cross-talk;

I'll have to split today's comment into 2 due to time constraints. About an hour or so into today's trade, the European markets are off the highs, but still positive, buoyed by the return of the bull run across the pond. We know better of course, and rather than be sucked into this brief bounce back, we build a short book. Looking through some charts in the early hours of this morning, I become even more convinced that a big drop is right ahead. There are dead crosses all over the place (or, as Steve "The Truth" Goodman, our technical analyst in the Dinner Investment Club puts it: "Jesus is a comin'!!"). Steve points out that the crossover between the 50 and 100 day moving averages, and in many cases, the cross between the 30 and 50 day ma's, have proved a key turning point. This was certainly the case back in March/April 2003, and we are seeing the reverse now, with shorter-term moving averages crossing the longer-term ones pointing downwards.
Let's look at some examples (I'll mention them, and if anyone can't get the charts, I can e-mail them to you). The SOX has just seen the 50-day cross below the 100-day, as has the Transportation Average, and NDX is almost there. INTC has also given the signal, and CAT is about to. These are big stocks, and major indices, and you might get these signals only once or twice a year, so it's hard to ignore them (especially when you read the economic stuff on this page later today). I also see that the Russell 2000 and 3000 indices have issued the signal on the 30 + 50 day averages, as has SPX, DOW and TMW (Willshire 5000), and you cannot get a broader measure than that.
Remember what I have been saying all week. Don't go against the trend. It is down, and will remain so until we get a signal to change it. What kind of signal? Get those books out again. Look at the past. For example, when we got a reverse off that 24% correction in the Nikkei in 1993 (the period which accurately represents what we are seeing now in the S+P for those who haven't read my earlier notes), the intra-day move spanned 4%. When we got the reverse in the S+P in October 2002, the intra-day move was 5%+. Those are signals that change trends. I haven't seen that yet, just a bloke on the telly saying you should buy now. That's not enough for me.
More later.
ACe

ACe Talking....briefly

As predicted, we get the bounce, and the patience pays off. The SPX has almost closed the gap on the day chart at 1110, and the NDX comes back to the 1420 area, so all according to plan. The Dow may have another look at the 100-day moving average at 10260, which could be today at this rate. There's an economics lesson here tomorrow, but for now, it's back to action whilst the nutters are out to play.
ACe

ACe Talking.......treading a familiar path
We've been here before. The U.S. markets are now stabilizing after the recent falls, as the oversold positions are digested. Too much fear out there to push us higher. Looking back at my chart of the Nikkei 10 years ago, I see that after the third failed attempt to break through 21,000, we fell back to the 100-day moving average around 20,400, and bounced either side of that for about 4 weeks before sliding to 16,000 in a month. If we follow that example, then we will see the S+P bounce either side of 1100 for another 3 weeks before the move to the 200-day ma at 1055, and then onto 900 (remember, we start buying in the 950-965 level, as we could bounce pretty sharpish).
If I look at some important shares, I get a further clue. GE, INTC and MSFT, as well as the Transportation Index (TRAN) have now fallen below their 200-day moving averages, so the bull market is no longer for these significant charts. Expect the rest to follow. AMZN was a real winner in 2003, trebling from $20 to $60 in just 6 months, but has now given back half those gains, closing below $40. Will EBAY follow? If so, it has another 10%+ to fall. What about Goldman Sachs (GS)? After beating all analysts earnings estimates, the shares continue to slide, and now stand 10% off their highs. Having climbed 80% in 2003, there is still about 15-20% to fall before giving back 50% of its gains. There are plenty of shares that have already done this, so get looking for those with plenty of room to fall, because these will be your prime short candidates in the next leg down, in mid-April. As for the buy list, it will be mostly in the tech sector, as that is where you will find the longest list of beaten up names. I see that the SOX is now wrestling with the 200-day moving average.
There is not much news around pre-European opening. I see that the Topix Index in Japan is now through the 2002 highs, and the Nikkei must have a great chance of hitting the twin peaks seen in 2002. Great chance to get short here too.
That's it for now. May post something later if I get a chance. If not, see you back here tomorrow. Good luck, and remember, BE PATIENT!!
ACe

ACe Talking.........treading that spooky path;

Not much news out there pre-European markets opening. In the U.S. we are still working off that oversold position. With all 2003 uptrend lines broken, we all know the direction. It's just a matter of where we can manage a bounce to. Not far judging by the fear. Most people out there terrified to hold longs for more than 5 minutes. Winners from 2003 are becoming the losers of 2004, with stocks like AMZN moving way below the 200-day moving average. Other charts that have left this "bull market barrier" behind include GE, INTC and MSFT, ie, big names in this market. A sign of where the indices are heading. In fact, if you look at the DJ Transportation Index, it's already broken the line, and the SOX briefly did so too last night, although it did manage to just close above it.
Also, note how good news is merely a chance to dump winners. Goldman Sachs (GS) is a great example of this, having announced numbers that beat forecasts by a mile, the shares have now fallen below the $100 level, now 10%+ from the recent high. The shares climbed 80% last year, so there is still some way to go in this correction. Note how Amazon (AMZN) was one of the first winners to be dumped in this bull run, with the shares trebling from $20 to $60 from March to October 2003, and now giving back half those gains, closing just below $40. Time to jump back in? Certainly I would consider putting this one on the list of post-correction buys. Not EBAY though. This one has another 10%+ to fall before giving back half the gains.
If we follow that path trodden by the Nikkei 10 years ago, then we have another 3 or 4 weeks of hanging around the 100-day moving averages before diving lower. I'll try posting that 1992-1994 nikkei chart, showing the 24% plunge in late 1993. Note how we held onto that 100-day moving average, like a man hanging onto the edge of a cliff for dear life, before plunging through the 200-day ma and then sharply lower. We have our clues from those charts I mentioned earlier, and the main indices will follow their lead. Remember...................be patient!!
Have a good one.
ACe

P.S. If the chart doesn't work, I can e-mail it separately to anyone interested.
The Nikkei - 1992 through 1995

ACe Talking.......awaiting the nutters return;

Gotta be brief today. European markets just opening, and little direction at the moment. I remain extremely wary of a bounce short-term, as we look a bit oversold all round. We have a report out today from research group Gartner, saying that global chip sales may rise up to 30% this year, powered by sales of chips used in consumer elecs and camera equipped cell phones. Also, we have Morgan Stanley upgrading Nokia and Ericsson in Europe, so there may well be some energy for a bounce.
Looking at the charts, the NDX has held 1370 in the last 2 days, which was the low in early December, so we could get a move back to the top of the current downtrend near 1450. On the SPX, we have a gap in the day charts at 1110, so that could well be filled.
Remember, be patient. You'll get another chance to get short this rubbish. Let the nutters have their turn now.
ACe

ACe Talking: Enjoying a good thrashing!

No, nothing like that, and not a beating from any long positions. Just sitting back and enjoying watching these markets jumping up and down (mainly down) as fear enters the vocabulary for the first time in a year. Of course, we are oversold right now, and the markets are offering great value. It must be true, because the bloke on the telly (translated, this means "the man on the TV", for all you American folk) said so. In fact, over the past 48 hours, I have seen a string of blokes being lined up to tell us how this is merely a temporary setback, and how wonderful the market is. Not that cheap, but not expensive either, and with no alternative homes for the cash, it must be stuffed right back into the stock market. Quite right. Stuff it in, and get rightly stuffed in the process.
I was asked about the time frame for this correction. My guess would be similar to what we saw in Japan in 1993, so about 3 months is the answer. The average correction is 61 days, and 11%, so 3 months and 20% isn't miles off average. In fact, everything is average these days. Last year was looked at as a great year for shares, but was only an average year for a "year 3" in the presidential cycle, and this is taken from data going back about 70 years. So a big yawn from me. What about year 4? The average is +5%, which would put us at 1166 on the S+P 500, and how wonderful that would be. I have dreams about that. If only it could happen now. Got to be patient. That's another rule to write down in that book. Be patient. If you don't get your entry point, don't enter! Having covered the shorts yesterday, it;s tempting to dive in, or even go long for a bounce. I do have faith that the "nutters" will return, but not enough faith to go long. Another rule for the book is don't go against the trend. The trend is now down, so no longs. Just flat or short. Don't be too clever. If this market catches a bounce, I'll chuck out the shorts. If not, I'll swallow a missed opportunity and await 965 for my first long position.
These techs are really taking a good pasting, and have now been on the slide for 3 months. Intel is a prime example, making the third peak at $35 in early January, and now standing at $26, having fallen through the 200-day moving average, and is now very close to giving back 50% of the gains from March 2003. This may be a guide to what we can expect elsewhere. For example, if the naz was to give back 50% of the gains from last year, it would fall to 1700. That would equal a 20% correction, about right. On the S+P 500, we would hit 975 (hey, that's right near my target !!), which would be a correction of about 16%. That should please everyone, as it represents a decent correction, and close enough the the line in the sand in the 950-965 area that the bulls have drawn. We failed at the level that represented a 50% bounce from the lows (1160), and it would be amusing to see us supported at the 50% retracement of the gains.
So predictable. Let's all yawn together. I'm off. See you tomorrow.
ACe

ACe Talking: Looking forward.

Every analysis that comes to the conclusion that stock markets are fair value, or cheap, is based on the fact that interest rates and bond yields are so low. These clowns have yet to work out why this is the case, ie, no inflation, no pricing power, and the first ever period in the western world where low interest rates failed to stimulate economic activity (unless you were alive in the 1930's). Think about it. Normally, you get a recession caused by high interest rates (needed to choke off the excesses of borrowing and spending). These high interest rates encourage saving, and thus causes people to pay off debt. What we have in this crazy period is people being discouraged to save or pay off debt, and encouraged to increase debt. We have low job growth, as pricing power is limited, forcing companies to find other ways to increase profits (ie, cost cuts). But we now have a situation where a slowdown is here, or coming soon. What happens then? Do we see rates cut further? That was the case in Japan, but, if anything, very low interest rates reinforce a deflationary mentality, and that is where we seem to be heading. Low interest rates means low inflation, and leads to low wage growth, and could see consumers start to pare back purchases as they see prices lower in the future. The Fed have tried all they can to avoid this, but are merely putting off the day of reckoning, and, in fact, making it worse.
Today, we are seeing weak markets in Asia and Europe, partly due to the weak close in the U.S., and partly due to increased concerns over terrorism, as the heat rises in Israel, with threats of major retaliation after Israel kills a religious leader. Also, in Taiwan, we have a 6.6% fall in the main index, as the election result has heightened concerns over a conflict with China. However, I found the news from TSMC more interesting, as it perhaps gives a guide to what we can look forward to in 2005 and 2006. On Sunday, TSMC announced that they may slash capex in FY05 by up to 50% because of slower sales growth in the semiconductor industry and extra capacity from new plant in China. Back to the old boom and bust cycles in this industry, as they expand in the boom (that was a short boom!) and contract in the bust.
This news should help us continue the correction in the tech sector, and drag the rest of the markets down with it. Remember the lessons of market behaviour, and you will understand what is happening. As long as you agree with the theory that we are in this 18 year bear market, and are now having the first mini-bull. then you can write the following down in your notebook. Of course, some out there will disagree, but then we know what kind of people you are.....brokers.
Back to the plot. In the first mini-bull of the long bear market, you always have a correction which tests the "guts" of the bull run. We had one in Japan in 1993 (24% drop) and in the Gold market in 1980 (15%). However, there is always a bounce back, as the mugs who missed the boat first time around jump on board for a second ride, back to the level pre- mini-bull correction. In current terms, it means that we see a fall of 15-25% in the S+P 500, which will take us to between 870 and 986. I certainly believe we will see the 950-965 area before this correction is through, as this is the "holy ground" for the bulls, being that well-publicised neckline of the head and shoulders on the weekly chart of the S+P 500. That would be my point of entry for the bounce back to 1140-1160. Then we have a nice journey to look forward to in 2005 and 2006, back to that wonderful place in the sun, 775 on the S+P.
There goes today's lesson in investing. Remember, the next time someone (you know who these people are) tells you how cheap the market is based on an interest rate argument, ask him/her what happens when fed funds move to 0.75%. Should you buy or sell shares? The answer is not as easy as you think. We found that out in Japan. And when this person tells you how rate cuts have stimulated growth, remind them that without the artificial stimulation of tax cuts and incentives for corporates to increase capex before the election, there would be no recovery. And if they want to know about value, send them to Japan, and tell them to take out a fixed mortgage at 2% and buy an apartment yielding 6%. Now that's value!
See you tomorrow.
ACe
See you tomorrow.
ACe

ACe Talking: Saying hello to a new crowd.

After a two-year absence, ACe Talking returns in time to say farewell to the first of the many bear rallies (mini-bull markets) we will see over the next 15 years or so. For those who have read this comment before, you will recall that stock markets are split roughly into 18 year periods of bull and bear, and the last bull endured from 1982-2000, with the 1966-1982 period (ok, 16 years. That's close enough) being the bear before that, and 1949-66 being the bull before that.
Looking at the current situtation in the U.S. markets brings Japan post-bubble into mind. I wouldn't get too bogged down with similarities here, but more in the behaviour of the indices themselves. Japan is a good comparison because it is the freshest bubble market in the limited mind I have. If I had a broader mind, I would remember the bubble in the Gold market in the early 1980's. Here, we saw the price of gold move from $170 an ounce in 1978 to a high of $850 in 1980, and then collapse by 43% in a few months to $480. We then saw a bounce of appx 50% to $700 by late 1980, before resuming its slide, hitting $300 in 1982, then bouncing 66% to $500 in 1983, before resuming the fall, moving back to $300 again by 1985. We then rallied back to $500 in 1987, and drifted back down to a low of $250 in 1999. Now taking 1980 away from 1999 doesn't quite give an answer of 18, but in my world, it gives the perfect answer, It says, in capital letters, that THERE ARE PLENTY OF MUGS OUT THERE WHO GOT SUCKED INTO A BUBBLE MARKET AND SPENT A HUGE CHUNK OF THEIR LIFE BELIEVING THAT THE BUBBLE DAYS WOULD COME BACK, AND PROBABLY THREW A BUNCH OF MONEY AWAY DOING SO.
Now let's revisit Japan. The Nikkei peaked in late 1989 at 39,000, then fell appx 30% over the next 18 months, before rallying 50% over the next 13 months, before a 24% fall very quickly, followed by a rebound, and then the resumed slide. Numerous 50% (and more) rallies later, and you have 2004. Now if we take 1990 away from 2004, we get 14, so in about 2008, it may be time to get excited. Not quite there yet, but it's closer than 2018, when the U.S. market (and the Europeans) resumes a sustainable bull phase. As for gold, it bottomed about 19 years after the top, and there's a bull market with about 13 years left to run, so WAKEY WAKEY.
Here is your first lesson in reading markets. You have to know your history. Believe me, there were plenty of believers out there in 1993, when the Nikkei was having it's first mini-bull. Even after another decline, the next bull, in 1995-96, which saw a 60% bounce, brought out the closet bulls. This was six years after the bull market ended, but the good times were still fresh in the memory. That's what bubble markets do. They turn intelligent investors into complete idiots, refusing to believe that the bull was over. Most of these have thrown in the towel now, but there are still one or two left about, and another 4 years for these poor souls to give in. Then we can get a new bull started.
Let's zoom forward to present day America. The S+P 500 is the most representitive of the major indices, and better than the Dow and Naz. To date, the S+P 500 has been almost identical in timing and percentage moves, to the Nikkei, with a 10-year lag. It had it's 50% bounce from the first lows, like Gold and the Nikkei before, and is now enjoying a nice little correction, which will be followed by a bounce, possible back to the 1140-60 area, before a nice slide back to the lows below 800. It's great to see so many mugs out there who believe all the hype being fed by the investment community. That is wonderful to behold, and will hopefully lead to lots of people losing plenty of wealth. We need wealth destruction to get a decent low on these markets in 2018 ish. I know that's a long time away, but there is plenty of wealth to be destroyed, and it will take a while to do that.
Let me give you a brief example of how investors can get sucked into the propoganda that is spouted by those above. Many people believe the figures showing that the U.S. economy grew by a healthy 4.4% in Q4 2003, but the truth may be way below. Goldman Sachs have just suggested that due to discrepancies in some economic numbers, Q4 2003 may have seen GDP at just 2.2%. Their senior economist, Jan Hatzius, has added his voice to the growing number of skeptics, who say that the growth figures are being overstated. Hatzius mentions "hedonic pricing", which I have read about several times in the past year. This is a method of calculating the contribution of certain sectors to GDP taking increased "quality" into account. For example, in computers, if the memory of a PC doubles, yet the price stays the same, the GDP figures will take a dollar amount that is doubled, not unchanged. That's plain daft, and totally unrepresentitive of what is really going on in the economy. It suits the powers that be, and it can fool many people into believing the economy is better than it is. In fact, it does, and it has!!
I see that Richard Russell is making a welcome return to the headlines. Richard is a real "God" in the investment community, having called the bottom in 1974, and the top in 2000, and at 79 years old, he has enough experience of bulls and bears to deserve respect. He says that "we are coming into one of the worst bear markets in history", and he uses Dow Theory to explain why we are now on the way down. Nice one Rich.
That's it for the moment. Remember the lesson. Go get a book or two about the history of investing. The last 25 years is a good guide to the next 25. You wait and see.
ACe

As much as we would like to think that we know how the market will trade by the end of day, end of next, end of the month, we have to understand that, at best, we can only be right some percentage of the time. No one is typically right more than 60 to 70% and even someone doing that well is rather exceptional. The difficulty of predicting the future is well known.

As I get ready to call it a week and to take off for a week I leave you with my snapshot of the markets as they terminate the week. If we look at the charts the markets are clearly not out of the woods here. All of these markets are sporting attempt to claw higher after a rather significant setback. The news flow is being regularly sold rather than bought and the tone has changed. You know that I'm attempting to catch another push higher into what I believe will be stiffer resistance with the desire to setup short in those areas and to take some longs off the table. But even though I believe that to be the more probable scenario to play out, I'm not certain of it and I've orders on every position in the portfolio to stop me out if we take another leg down in those issues. With every position you placed on the sheets, you have to have an out for both the loss and the gain. I tend to always consider the loss first, then the potential gain when putting the money on the table and like to get a 2:1 win/loss ratio on any play I take. Sometimes I take it for less, but that's the desire as that gives enough margin of error to come out on top.

So as I bid you farewell, enjoy Andrew's posts for the week to come. I may check in a couple times while on the road and if I see something I feel requires comment, I'll drop a line. For the most part, I intend to take the time off and refreshen myself. We have a good start to the year but it's getting hard again and we have to be prepared for whatever comes next in order to stay one step ahead of the pack. Have a profitable trading week and I'll see you the final Monday of March.

They are killing me with the SOX. Can't catch a break there and it bleeds all over the tape as they make new lows. I continue to hold in all stocks for now. The only adds today has been in the metals as I accumulate for an expected break higher. Watching MNC closely here. We are back in the money and I'm wary as the WGO earnings news yesterday was the catalyst. Looking to take profits here soon and back off of it for a bit.

After the early desire to take them higher, gold has come in a bit given the nominal dollar strength. I've finally got my first buy done on NEM and now have my second round of buys up for bid. The setup is a long setup and you can scale into them cheaper right now if you choose. I'm doing so.

Overall, the market finally caught some legs and has given us a bit of a jig higher off that early weakness. Look for that to build as the day proceeds is my thought.

I tend to watch a lot of stocks. When something starts to show a good chart pattern and increased volume, I tend to get it on a watchlist and monitor. As a result, I have a good 200 stocks that I have alarms on to signal buying and selling areas. Since I can't really watch them all, I let the alarms watch them for me. I've found this a useful practice. It goes into the preparation category ... kind of like the unheralded tackle in football who makes the running back the best thing since sliced bread.

Lately, a lot of these triggers have sounded but I'm reluctant to buy. Isn't that the way it always is? When they are offering, there are no takers.

More realistically though, I'm not wanting to bloat my portfolio. It's not that I like them any less, I just have to choose carefully what I add at a time like this. I want to stay around 40 or 50% long at most and would rather be down around 20 to 30% as we move higher with a hedge being put on short. Trading is a function of looking at the big picture as well as the small and determining what your time frame is. What kind of time frame are you playing on? That's important. It frames the trade so to speak.

The market's have recovered nicely and threatening to go green. I suspect that we will get that late day strength yet again today and have positioned just for that. Let 'em rip!

Boy, the pessimism in the chip sector is so thick that it colors all markets. We had what looked to be a decent setup this morning but the chip weakness and keeping a lid on any advance so far. As we all know, that sector can change on a dime, but until it does, in ability to rise here is capped.

I'm looking at a break of a trendline on ATPG and trying to add a bit more exposure in that name. Trying to be patient and wait for an opening as they are going straight up here early but that may not happen.

It's options expiration so expect some volatility today. They start them off weak as the pre-opening numbers fail to accurately guage what was in store. I've added a little GLG off it's opening weakness and am looking to add to PAAS and add some NEM. Adding in stages so if we get a further pullback then we can average in to full size positions. If it takes off, then we have a little on the table.

Yesterday we saw the backing and the filling that is necessary for a further move higher. Doesn't guarantee it ... it's just necessary after such a drop. Today we have the setup. Markets are closed for a couple of days and geopolitics are going to make it hard to stay short or underinvested on the long side given what is happening with that high value target near the Afghan border. So, can the market seize the opportunity?

If the market does in fact do that, it may be the perfect time to scale out of a little more exposure. The only exposure I'm looking to add on the long side is in the metals. Monty is back on the Message Boards with another posts of which he mentions the metals breakout. I mentioned them here yesterday also. He's been spot on for a good while now and it's hard to ignore his posts. I would use any opportunity here on the metals to gain as much exposure as your risk profile allows. As I've said many times, when plays are tough (which they have been for a while now), you have to play small, protect your capital and wait for the next setup. The gold market is flashing a buy setup here. No guarantees but a pretty good bet.

The next setup is a surge into more serious resistance on the indexes. That would be a good short setup for either individual issues or indexes. I'm still fairly certain I'll take that setup when and if it comes. I'll also look to reduce long exposure. Those resistance areas exists on all the indexes but the two I would key off of would be the SPX at 1140-1150 and the NASDAQ at 2000-2020.

The late day strength today is again apparent. I know that it can be somewhat dismissed as a result of the potential/impending capture of a high value target in Afghanistan, but nevertheless, it is what it is ... buying at the end of the day (or short covering). This is a departure from the standard operating procedure of late. This is the sort of sign I was looking for out of today to suggest that we are not quite through of an attempted push higher. This validates the thought that the majority are still believing that this market has just had a normal correction in an ongoing bull phase. Be it what it may, but if the belief of the majority is just that, then we will see higher prices in the days to come ... at least till we get to the real stiff resistance areas. Trying to get the feel for what the majority is doing/wanting to do is right up there in importance just as a lot of things are in trading.

So, we end this day with almost a push even though we have but 4 stocks showing green. A push today is better than I expected coming in strictly long and knowing some backfilling was likely. Final volume numbers are not in yet, but they look to have contracted some more today (a down day). New highs/lows were roughly the same as the last couple days (good) and although we had negative internals on the up/down stocks and volume, even that improved into the last hour. All things considered, a plus day overall. See you tomorrow.

I'm back to see that we are finally getting that lift I was looking for. All remains the same as I've done nothing more today after that last add of POOL right before I took off. More comments to follow after the market closes.

I mentioned yeaterday the parallels between the Japanese stock market 10 years back and the U.S. markets now. The S+P 500 is the index which seems to fit with the patterns of the Nikkei. For those unable to access a chart, here is the Nikkei in the first bear market rally, which took place from July 1992 to July 1995. Note the sharp drop in autumn 1993 (same time frame would give the S+P falling over the next 3 months), and the equally sharp rebound in December 1993. We then saw a rise back to the previous brick wall, which then marked the end of Bull Phase One. This is classic stuff in post-bubble markets. You need to have a decent correction to question the