The Investolator

Market Commentary

investolator — Wed, 11 Aug 2010 12:44:42 +0000

Various indicators that I follow are pointing towards the potential for a short term cyclical market top over the next few days. The market is currently quite overbought, with almost 80% of stocks on the NYSE above their 50 Day moving averages; this has often coincided with short term tops. In addition, my NYSI and slow STO indicators are showing unfavorable conditions. For traders, I would recommend exiting long positions, and moving to short stocks within the 1120-1130 range.

Here is a weekly chart of the SPX. The very large volume on down days indicates distribution, a common characteristic at intermediate market tops. This is not to say that stocks cannot move higher after a pullback, but simply that the market is potentially in a longer term topping phase. There is also a potential head and shoulders pattern, which would be confirmed if the market were to make a lower low. Note the formation of a spinning top candle, which, if the market declines, could become a dark cloud cover. It will be very important to watch the 1131 to 1150 level, because if the market cannot break this level, it would be a lower high. The full stochastic clearly indicates mid-term overbought conditions, which means that a short term pullback is likely. I will have to examine price action if a pullback occurs to determine whether it is consolidation before a further rally, or the start of a larger down move.

SPX Weekly Chart

From an inter-market perspective, 10 year treasury yields have continued to decline quite sharply. As pointed out by David Rosenberg, “declines of this magnitude often presage the onset of economic and/or general market declines. Typically, equities and then economists are late to the game”. In addition, various important economic indicators are pointing towards the possibility of a second half slowdown, and even recession. John Hussman has accurately examined such indicators, and provides quite an interesting thesis. “The indicators in questions are:

1: Widening credit spreads: An increase over the past 6 months in either the spread between commercial paper and 3-month Treasury yields, or between the Dow Corporate Bond Index yield and 10-year Treasury yields. This criterion is currently in place.

2: Moderate or flat yield curve: A yield spread between the 10-year Treasury yield and the 3-month Treasury yield of anything less than 3.1%. As of last week, the 10-year Treasury yield was 3.22%. The 3-month Treasury bill yield was 0.08%. So virtually any decline in the 10-year yield from here will put this criterion in place.

3: Falling stock prices: S&P 500 below its level of 6 months earlier. This is not terribly unusual by itself, which is why people say that market declines have called 11 of the past 6 recessions, but falling stock prices are very important as part of the broader syndrome. This criterion is currently in place.

4: Moderating ISM and employment growth: Manufacturing PMI (at or) below 54, coupled with either total nonfarm employment growth below 1.3% over the preceding year (this is a figure that Marty Zweig noted in a Barron’s piece years ago), or an unemployment rate up 0.4% or more from its 12-month low. At present, both of the employment measures are in place. Last month, the ISM PMI dropped from 60.4 to 59.7.”

Bullish sentiment is not yet extreme, so although markets could potentially move higher short term, I would be increasingly cautious. During cyclical bull phases, rally cycles can lest 10 weeks or more; during bearish phases, rallies are often 6 to 9 weeks in duration. The current rally is approaching 6 weeks. This is something to watch closely over the next few days and weeks.

Thanks

Watchlist

investolator — Fri, 04 Jun 2010 12:52:56 +0000

Although the markets are still weak, and may remain so for a few weeks, here are a few potential setups with entries. They are mostly buy on dips as opposed to breakouts, which is why I have included ranges. Although some have not yet declined to the prices indicated, I expect they will. Examine the charts for exits, but these seem like quite good swing trade candidates, with nice reward-risk setups. In addition to setting up properly from a technical perspective, these stocks also have compelling fundamental pictures. Three of these companies are Ben Graham “Net Net” type companies, and seem to be selling at quite a large discount to intrinsic value.

IGOI: $1.34-$1.40
GRVY: $1.32-$1,40
USO: $31-$32.50
TNDM: $10-$11
BBND: $2.80-$2.85

Excellent Setup

investolator — Fri, 09 Apr 2010 10:17:56 +0000

Here is another excellent swing trade setup in my opinion. Breaking $1 it could move to $2 and potentially $3.

IMOS

P.S. I will bet posting a market commentary on the right shortly, so make sure to look out for that.

Short Update

investolator — Mon, 08 Mar 2010 17:15:08 +0000

Hello,

I wanted to share what looks like an excellent setup: BBX

I like this setup because it’s an ambiguous one, given the long term downtrend. The alignment between the weekly and daily charts, however, especially given today’s action, indicates a potential move to $2 and then $3. Note the bullish double bottom and cup with handle on the weekly.

Thanks

Watchlist

investolator — Wed, 02 Dec 2009 14:08:54 +0000

Hello,

I’ve been quite busy recently, so haven’t been able to update my watchlists. For this week, I have only 1 setup as a long term swing trade:

KERX: 2.47 (2.65)

Although the daily is bullish to the mid $3s, the stock could potentially move to $4, then $5, over a period of a few months.

Thanks

Watchlist November 16th

investolator — Mon, 16 Nov 2009 12:52:34 +0000

There really weren’t that many interesting plays on my scans this week, so the list is quite short. Some very nice plays from last week though, including NLST which was up nicely.

QTWW: 1.25
SIRI: 0.72 (0.78)
AHII: 2.90
CACH: 5.88
TSTR: 1.35
AFFX: 5.50 (6.00)
AGEN: 1.15
MENT: 7.75
INSM: 0.84
AMR: 6.00
VTG: 2.10
MPG: 2.25
NLST: it may still have some room
QMM: 1.20

Note: the prices next to the tickers are break prices. The stocks in question only become interesting if the resistance levels are broken in a convincing way (increasing volume etc…).

Watchlist November 9th

investolator — Mon, 09 Nov 2009 14:21:45 +0000

AMR: 5.75
QMM:0.79
BIOC: 4.75
XIN: 5.00
NGD: 4.59
MVIS: 4.00
ISTA: 4.60
GENT: 2.75
CYTK: 3.50
CTIC: 1.02
CNTF: 3.60
LAVA: 2.24
NLST: 0.84
GKK: 3.39
AAI: 4.70
CBBO: 1.50
LNET: 5.70

Watchlist November 4th

investolator — Wed, 04 Nov 2009 12:02:39 +0000

Hello,

Here are some good looking setups for the following weeks:

FCE/A: 9,20 (9,50)
FLOW: 2,91 (3,00)
GKK: 3,40
KDE: 1,90 (2,50)
HW: 4,40
LAVA: 2,25 (2,64)
MBI: 4,25
NM: 4,85 (5,00)
SD: 11,00
SIMO: 4,50
TOMO: 3,60
ULTR: 5,72
WRES: 2,45
XTXI: 6,82
LNET: 5,30

Watchlist September 30th

investolator — Wed, 30 Sep 2009 12:47:12 +0000

As my charting service was down this weekend, I couldn’t post my usual Monday update. Here are the setups I’m currently watching:

ACPW: 0.95
AEHR: 1.40
AHII: 2.26
APP: 4.00
ACLS: 1.00
AVGN: 1.58
AWX: 2.85
CACH: 5.65
CRGN: 1.50
BBND: 4.31
ERES: 7.56
FLOW: 2.87
FRPT: 5.90
INSM: 0.90
MGI: 3.43
NFP: 8.25
NLST: 0.71
SRZ: 3.00 (3.25)
GLG: 4.61

Also make sure to watch stocks on the previous lists.

Please note that I am not an investment advisor. These are not buy recommendations, simply potential setups.

Investolator

Watchlist September 21st

investolator — Mon, 21 Sep 2009 12:38:25 +0000

The stocks which broke the “key levels” on last weeks wathclist performed nicely, with multiple stocks up more than 30%. Here is this week’s watchlist, and the key breakpoints:

ACLS: 0.85
INSM: 0.90
ACMR: 4.40
AHII: 2.12
AMCN: 8.38
BGP: 3.50
IKAN: 1.90
LIZ: 6.55
NFP: 8.50
NLST: 0.69
SIMO: 4.50
SRI: 5.75
SRZ: 3.06
VM: 5.00 (5.15)
BPZ: 7.65
HNR: 5.50
KAZ: 1.05
OXGN: 1.61
MHGC: 5.55
RIGL: 8.00
CAEI: 2.00
TAGS: 0.85
ERES: 7.00
SNTS: 3.57
CRGN: 1.48
WPTE: 1.15
CIT: 1.55
PNX: 3.60
UNG: 12.00
LDIS: 0.89
FBC: 0.95

Please note that I am not an investment advisor. These are not buy recommendations, simply potential setups.

Investolator