Here’s a chart showing the SP500 since July ’96. You can see that it has been in a range from 700 to 1600. The obvious problem with investing long term over that time period is that a person could have made a lot of money on the way up but then it reversed for such a long period, again and again. Let’s test it.

Using the monthly chart below for buy/sell signals over the last 13 years:

Buy: 800 (May ’97) -

Sell and go short: 1247 (March ’01) = 55% gain (10,000 becomes 15,590)

Buy back and go long: 1055 (Nov ’03) = 18% gain (15,590 becomes 18,427)

Sell and go short: 1,380 (Feb ’08) = 30% gain (18,427 becomes 24,103)

Buy back and go long: 1060 (Sept ‘09) = 30% gain (24,103 becomes 31,380)

Total: 200% increase in 13 years (10,000 became 31,380) = 15% per year (or 9% compounded)

Buy and hold: 1,048 / 800 = 31% ($10,000 became $13,000) = 2% compounded over 13 years

The chart is hard to read but each point above was chosen because it was the price on the last day of the month after the price crossed (over or below) the pink and blue lines. If you compare the points I chose you can see that they weren’t even close to the tops and bottoms because catching those points would be next to impossible. Even though we could have bought lower or sold higher, these buy/sell points are made only after a trend direction has been determined.

Since that chart uses only monthly points each candlestick is very long meaning the SP500 price varied greatly during the month. Using a monthly chart we limited our buy/sell points to very long-term trends and missed a log of smaller trends that are buried within the monthly candlesticks. What I’m trying to say is that there are smaller trends within these trends that could be traded to create even more entry/exit points and potentially catch the trend earlier than we did in this example. Imagine waiting a full month (or 3 months) to make sure a trend is underway before selling. A weekly or bi-weekly chart could identify trends even earlier.

Wednesday

Everyone is expected bad news and even saying that it's priced into the market but bad news is suddenly being taken seriously. Yesterday, existing home sales were down 27%. This was supposedly expected because we were just coming off the first-time home buyers tax credit deal of a lifetime. But, the market still moved down about 1.5%.

Today the headline is "U.S. durable-goods orders rise a less-than-forecast 0.3% in July" and the futures are responding negatively.

Investools (IT) shows this Market forecast chart:the green (intermediate) line is close to entering the oversold area. If it does while the other shorter-term lines are still in that area this is a bullish signal. The SP500 shows the 30 MA moving toward a declining trend.

US Treasury yields are at their lowest since 01/09 at 2.44%. There's no money to be made there yet people are still moving their money into UST. Why? They are afraid of the stock market and are avoiding risk.

I can't see any reason to be optimistic - other than the possibility that the Fed resumes Quantitative Easing policies to artificially hold up markets.

So, for now, I reiterate my short stance. Already in TZA and added to that position yesterday at SP1055/ TZA @ 39.50.

Bought JOYG @ 57.58. F1=7/0; PPatt: 4.0; At bottom of range so expecting bounce to 62.50 (8.5%).

Watching to go short CROX based on industry downtrending and TL analysis

New Direction?

Yesterday the SP500 moved to a new August low of 1076 (-1.7%) on poor unemployment data and news from the Philly Fed Chairman. It's rare that the market responds negatively to bad news these days but there just isn't anything to cheer about. There have been some positive earnings news this week but it has mostly been a mixed bag.

The news today; "Treasury yields reach new lows on safe haven shift." This has been the main factor I've been sitting on to maintain my short bias.

On investools, the SP500 maketforecast chart has the intermediate line moving lower (has just recently moved from overbought to reversal) and the near-term line reversed before entering overbought. They interpret this as short-term negative.

TZA - I'm going to remain in TZA this morning since the daily and 2-day is below TL (Trend Line). The weekly price is split between my TL (1030 bullish) and Allan's TL (1132 bearish). but the vortex(14) is still short. ITools SP500 posture is bearish (3 red arrows on 8/14ish).

So far, this morning the futures are -.6% indicating a lower start.

Positions:

HAR 30.50 (short): IT has 2 G arrows and positive insider trading. 2day TL still short and sitting just below 20 MA. Daily TL short. I'm behind 1% so let's see how the morning goes.

JDSU 10.37 (short): point higher premarket. TL daily and 2day short. Itools still short with heavy -ITrading. Keep watching.

MMRF .12: 2 red arrows, price pattern .5. I need a move to .14 to get profitable. I'll wait for now. No bounce on positive earnings and no news expected. Not good here.

NNVC 1.28. Price pattern at 4.0. Let's watch

BVN 37.90 Between TLs Vortex tied. Red arrow on MA. Price pattern 4.0. Is this a toss up or what. Down 1.75%. Hanging on for more direction.

MON Got out at 59.19 now at 56.87 premarket. Out with 11% profit. Best trade in a while.

New Watches:

NTRS (IT, Red Arrows Search) Premarket down 1.5%

Edit: The sp500 moved down another 4 points during this session (on a 12 point range) so for now we're still downward biased. Monday's are almost always up days so we could take some hits on short positions on monday. TLs: Weekly is still split, 1 and 2 days are both negative.

Har - slightly up against us.

Jdsu = up .5%; No signal changes

mmrf - up 7% to .13. Not significant and no signal changes

nnvc - no change

bvn - up slightly - no decision change

ntrs (watch) started down and recovered through the day. may still be good short candidate

Is this Investing?

Yesterday the markets spent the whole morning in the red waiting the Fed report. Why would the market be down in anticipation? Either investors felt a) the Fed would indicate the economy is bad (really?) and do nothing leaving investors holding the bag, or b) the Fed would say the economy is rallying - knowing that it isn't really - and do nothing. So, when the Fed reported that it would act to keep interest rates low the market rallied. Why did the Fed feel the need for more economic support? The economic rally is stalling out and needs a new push. So, the real news is bad (slow economy) but the new action is good. The market will take a handout with pleasure and so markets move up.

Then we sleep and forget yesterday. Today, the Asian markets are providing bad news and an indication that global economies are stalling. So, futures are down 1.5% this a.m.

Though the markets are making strong moves up and down (resulting in mostly sideways movements) quietly in the background the Treasury markets may be providing guidance. Here's a snippet from FundMyMutualFund:

Meanwhile as equity investors drink (Fed provided) Kool Aid, the bond guys continue to send warning shots - the 10 year is now down from 4% (in April) to under 2.8%! Shades of mid 2007 when giddy equity investors had not a worry in the world as they sent the S&P 500 to all time highs in October of that year... while they whistled past the graveyard. I have a feeling we're going to be looking back at this chart in Q1 2011 and talking about similar whistling.

The 10 Year Treasury yield is dropping because investors are moving money to Treasuries which force the purchase price higher. The yield is at 2.72 prior to market open.

In my view, the economy still seems very slow. There will be no recovery until people get back to work and those who are working feel some security. The treasury yield indicates that people are opting for bonds rather than stocks right now. So, in spite of the fact that the SP500 daily Trend is upward and the weekly trend has now crossed above the Trend Line (bullish), it just seems like we should be moving down.

My strategy is going to be to play along with the market (long) but hold very short leashes keeping stop-loss orders close. I won't be viewing any drops as buying points to go long but will watch these as potential short opportunities. In otherwords, my bias is to the short side.

Keeping all long positions for now.

Investing Thoughts

Last night I got out of TNA (mostly) before the jobs report. Today, need to decide on a new direction.

Big picture: The SP500 is at 1120.77 this morning (-5 points) after the unemployment report. The SP500 has spent the last 13 weeks under the Trend Line. I use two different Trend lines and expect both to be breached before making a decision. It's actually sitting on the reversal decision line (pink) but about 11 points short of the second one. So, we could treat this a couple of different ways. We could wait to see if it crosses above which would generate a new buy signal on the SP500. Or, we could trust the TL and expect that this is the top of the range. The second option lines up better with the latest news of the day (negative unemployment news).

The Asian markets provide no insight today but the European markets are all down between .5-1%. The 10T note yield is dropping this morning (2.90) meaning again that people are moving money into Treasuries (and other bond funds).

The Daily SP500 is above the daily TL and has been for 21 sessions. At 1121, it would have to drop to about 1091 to create a true TL Sell Trigger. However, it is appearing to become parabolic. The 200 days SMA (~1115) would provide support.

Normally, taking the thoughts that the weekly is bumping resistance, the daily is parabolic up and the news of the day is negative, I would consider a TZA buy. But, the market is only slightly responding to this. TZA at 10:15a is only up 1.5%. TNA daily is TL up with vortex support.

Individual positions:

Drys - daily up strong at 4.94 reversal at 4.41. 200 day resistance at 5.55. continue long. set stop at 4.44.

Banr (JM - reg bank WA)- Daily up at 2.33, reverse 2.10. JM Target=3.25. Stop at 2.08

mmrf (health records) - Today (.14) released letter to investors about upcoming prospects. Sounds great (PR is) but I will hold. Even .01 move is 8%.

nnvc - in TL sell mode. Today at 1.17. Thinking about putting more in to average down. Not yet. Maybe on a new move up.

IPXL (LNav)- supposed to double in the blink of an eye from 17.01. Now at 16.99.

Sold LPSN at 7.05. Today down to 6.73. Good sell.

MON - @ 60.89. Up 13.5% since purchase. Still moving up. 200d Resistance at 68.

At this point, I can find no changes to make. We'll watch how this plays out today. If we see a huge drop today, we could go long (TNA) at close to take advantage of the bounce and Monday's normal optimism.

The Market

As expected, the stock market is moving higher. It is Monday you know! The only question now is, "will it stay in positive territory?" That's anybody's guess but I do have an opinion (which is worthless). The market is going to respond up and down all day long to any news - whether expected or not - that may have any bearing on stocks.

The pros (and/or the computer systems) will determine the final outcome probably in the last 30 minutes of trading.

At this point, I'm mostly invested in stocks that seem to be moving upward regardless of the "play of the day." But, I'm ready to go into short investments (i.e. TZA, SDS) when the market gives some clear indication that it is ready to pull back. Baring major market news, that signal will probably not come today.

One stock of note: GDP moved above the Trend Line (see AllAllan.blogspot.com) and created a buy signal last Thursday. Today, it appears that others have noticed the trend and are pushing GDP significantly higher.

Improvising

If you don't have scissors you can fold paper and rip it against a corner of a table.

If you don't have a screwdriver you can use a dime or a piece of metal.

If you don't have a flashlight you can redirect light with a mirror.

If you are MacGyver ;-) and need to plug a leak, you can use chewing gum. Didn't he always seem to have chewing gum?

If you don't have another car fuse you can use aluminum foil (don't try this at home).

If you don't have a Q-Tip, what in the world can you use? There just doesn't seem to be a replacement for a Q-Tip in a wet ear!

I'm just sayin'

Stock Market Speculation

This market is very difficult to predict. Every day, the market players react (or overreact) to some news that seems to be already obvious. For example, the news could be that housing sales are up. But, the stimulus plan requires buyers to close prior to June 30. It dictates that sales will be squashed into a shorter time frame than would otherwise be natural. What will happen in August when the news hits that home sales were lower in July than in June? You can bet the market will react as if it didn't know that would be the case.

Today, the market dropped 3-3.6% on disappointing jobless data. My guess is that everyone already knew that would be the case. But, yesterday President Obama guaranteed good numbers. He established a high water line that didn't even come close to being reached.

But, the market doesn't tend to drop two days in a row - especially when the first day's drop was this dramatic. You can't really count on any "normal" action but Mondays have been good for weeks. I'm guessing that Monday will be like a rubber band stretched to far by today's drop. There should be some rebounding.

Jon Markman pointed out that the market (S&P500) is setting up for a head-and-shoulder top which began in January 2010. The right shoulder "bounce" should make it to 1140-1150 if the pattern plays out correctly.

I'm just concerned that people are so disenchanted with the market and it's strong volatility that the right shoulder may not come about. I do believe the movements will continue to be choppy but I'm thinking down is the dominant direction.

I'm going to use SDS (twice the inverse of the SP500) to take advantage of any moves downward. I'll use stops to make sure the radical moves don't do too much damage in case the shoulder does appear. For now, I'm going to wait until some confirmation - probably until Wednesday of next week - before going "short" the market with SDS.

More later...