Short Term & Long Term Chart of S&P 500 Index

Above is 6 month daily chart of S&P 500. As you all know, the bulls came charging back with vengeance and broke the short term down trendline yesterday. For the DOW, it is also the biggest 2-day gain in 5 years. The last few days have not been easy for swing traders with those offsetting wide range bars. Is it all rosy now? Take a look at the longer term chart below.

This is a 5 year monthly chart of S&P 500. Since 2005, the 20MA has proven to be a great support for the monthly chart. Over the longer term, if the 20MA can hold, it looks like the indices will do fine. But the shorter term picture, in my opinion, is still on the edge and easily affected by the credit issues and economic data.

Has the Market Found a Bottom?

The bulls were sidelined ahead of the typically bullish Thanksgiving, though last Friday saw a nice trending market for half a session. A bullish engulfing bar is formed on S&P 500, but we need to see follow through in the days to come before calling a bottom because I don't give much weight to a half day session. Otherwise, we are still in a short term down trend.

Tue: National Home Price Index, Consumer Confidence
Notable earnings: AEO, ADI, DBRN, MRVL, SIGM

Wed: Existing Home Sales, Durable Orders, Fed Beige Book
Notable earnings: ARO, CWTR, MW, DLTR, SNDA

Thurs: GDP, GDP Deflator, New Home Sales
Notable earnings: DELL, OVTI, SHLD, VIP, ZUMZ

Fri: Personal Income, Personal Spending, Core PCE Inflation, Chicago PMI, Construction Spending
Notable earnings: BIG, TIF

Ray Barros' Secret to Managing Money Well - Supportive Spouse

Here'sRay Barro's interview with The Straits Times. Click article to read. My jaws nearly dropped when I read that his wife stood by him through his first seven years as a trader despite $1m in losses. While I have to admit that not many traders out there can sustain the $1m losses and still make a come back, I cannot agree more with the importance of having a supportive spouse. A trader can focus 100% without the added pressure of having to answer to an unsupportive spouse. In this Thanksgiving, I'll like to say a big Thank You to my beloved hubby for his patience and support all these time ;)


Source: The Straits Times

Bullishness Ahead of Thanksgiving

Above daily chart of S&P 500. We are in a short term downtrend but seeing strong support at 1440. Upcoming week is a short week with Thanksgiving holiday falling on Thursday. I expect the second half of the week to be quiet. Typically, we see the bulls join in the celebration ahead of the Thanksgiving, unless of course, we hear the "C" word again this week.

On the earnings front, we see more retailers announcing results this week.

Mon:
Notable earnings: HPQ, MDT, JWN, LOW

Tue: Building Permit, Housing Starts, FOMC Minutes
Notable earnings: BKS, BJ, BCSI, BGP, CMED, DKS, FMCN, GME, GYMB, WFMI, TGT, SKS

Wed: Leading Indicators, Mich-Sentiment
Notable earnings: ANF, DE, PLCE

Thurs: Thanksgiving Holiday (markets are closed)

Interesting Market Internals Observations

Above chart shows % of stocks trading above the 20MA, 50MA and 200MA since Jun this year. Notice that during the last sell off in end Jul -Mid Aug, less than 20% of the stocks traded above 20MA. We saw this dip below 20% on Monday. Are we seeing a bottom here?

Over at this chart, we observed that while the market was making a slightly higher top in Oct, it was not supported by the market internals - the pink line (which represents the # of stocks making 20Day high less # of stocks making 20Day low) carved out a lower high. A telling sign of toppling.

And more recently, a few days ago, I started to see this pink line making higher lows despite the market tanking. Again, this is indicative that a reversal is near.

So is the sell-off really over? While the rally yesterday was strong and broad-based, only time will tell which way the market will go. But I do expect the bulls to stay at least for the next few days. But hold your breath. If you observe the first chart, you see that we have 3 bottoming points of the blue line (both in Jun and also in end Jul- Mid Aug period) before we see any meaningful bounce. In such volatile times (and don't forget we've got options expiration on Fri), you need to adjust your game plan, like trade lesser positions, more balanced portfolio of calls and puts (if you've been too aggressively bullish) and be quick to lock in your gains. If you are still not comfortable, stay on the sidelines.

I credit Br Brett for introducing this method of reading the market. He had an great post "Gauging the Extent of Market Moves and an Indicator Update", do read it.

Related Post: What Is The 20 Day Hi-Lo Telling Us?

Retailers' Week

Earnings season is wrapping up with most Tech and Financial stocks having announced their results. This coming week, we will see some retailers announcing earnings. Let's see what they think of the holiday shopping this week.

Mon: Veteran Day (Bank Holiday)
Notable earnings: DISH

Tue: Pending Home Sales, Treasury Budget
Notable earnings: EXM, HD, WMT

Wed: Retail Sales, PPI, Biz Inventories, Fed Chairman Bernanke speaks
Notable earnings: NTAP, SINA

Thurs: CPI, NY Empire State Index, Phil Fed
Notable earnings: A, ADSK, KSS, CRM, SBUX, STP, TYC

Fri: Industrial Production, Capacity Utilization, Fed Governor Kroszner speaks about economic outlook (tentative), Options Expiration.
Notable earnings: ANN

p/s: having abit of problems with uploading charts. Will try to post some if blogger allows.

The Trader's Guide to Key Economic Indicators

Ever wondered why some economic data are weighed more heavily than others? Under what kind of economic conditions would the trading community place more emphasis on this or that set of economic indicator? You need the experience over time to learn this on your own. It sure took me some time watching the market before I came to realize these. And even then, I have only seen the bullish side of the market. I have not started trading during the 2000-2003 down trend. If only I had read “The Trader's Guide to Key Economic Indicators” when I first started trading, it would have speed up my learning curve a lot faster! So beginner traders out there, do take note.

By pure chance, I saw this book and was drawn by the organized format of its content. Each chapter discusses a key economic indicator (e.g Retail Sales, Personal Income & Outlays, CPI & PPI etc – there are 12 of them) and each chapter consists of the following:

-Evolution of the Indicator (which gives the curious mind a background of how the indicator comes about)
-Digging for Data (sources of the data and what inputs and numbers are combed and combined to give the reading)
-What does it all mean? (explaining the sub components and intricacies of the indicator)
-How to use what you see (what should be taken into account of when interpreting these data)
-Tricks from the Trenches (what other methods or calculation economists use to predict the numbers ahead of to look at it in another perspective etc)

Written by Richard Yamarone, a former trader, academic and current Wall Street economist, this is an excellent book written in a concise manner. As one commentor said: "The book breaks down the often complex world of economics into easy to understand guidebook for investors." You will not find yourself muddling through it or falling asleep while reading this book, unlike some other economic textbooks. For traders, this book teaches you how these indicators affect the stock and bond markets when they are released.

If you are looking for an economic book for traders which doesn’t give you a headache after reading, but yet still has substance, I highly recommend this book. Even if you have been following the market for some time, there are still some interesting nuggets to be picked up from this book.

I will try to throw in some of the “nuggets” I’ve picked up in another post. Stay tune!

Grade: A

First Solar (FSLR) & Cisco Systems (CSCO)

FSLR, a darling of analysts, beat earnings and raised guidance when it reported its results on Wed after market closed. Above chart of stock with after hours action. Stock traded at $206.5 after hours, up $39.38. The solar energy sector has been going from strength to strength despite the market weakness. Don't believe? Check out JASO, STP, SPWR, ESLR. Other stocks in this sector that may move in response to the blow-out earnings from FSLR includes: AKNS, ASTI, CSIQ, CSUN, DSTI, LDK, SPIR, TSL, WFR, YGE.

CSCO fell almost 9% after hours to $29.82 despite reporting decent numbers. Why? Its revenue growth forecast for the current quarter fell short of analysts' expectations. CSCO result is likely to weigh the Nasdaq down when market opens on Thurs. Let's see if Nasdaq, which up till now has been leading ahead of S&P 500 and DOW, can defend its position.

On a separate note, both the DOW and S&P 500 have carved out lower high and lower low with yesterday's action. The bears are now officially in control. As for the financial sector, the 2-day relief was indeed a very short and temporary one. It broke the down trend line yesterday. I will try to post the charts later today or in my next post.

Temporary Relief In Financial Sector?

Its official. Citi's Chuck Prince became the second CEO casualty from subprime and CDOs mess, right after the departure ("retirement") of Merrill Lynch's Stanley O'Neal. Here's a 2 year chart of XLF (SPDR Financial Sector):


Financial Sector carved out a lower high and lower low in June and has since suffered some ugly damage, although there appears to be some reprieve in mid-Aug to mid-Oct. Purely from a technical standpoint, this sector is likely to see some temporary relief as it printed a hammer at the lower end of the down trend channel.

As for the S&P 500, it has now carved out a lower high, with strong support at previous swing low of 1490. This is now an important level to watch for to determine if we have confirmed change in trend.

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Mon: ISM Service Index, Fed Governor Mishkin and Korszner to speak
Notable earnings: ASEI, APC, CECO, WCG

Tue:
Notable earnings: ADM, NILE, BMC, TAP, PZZA, JOE, WPI, CTSH, HLF, HOC, JEC, BTU, VLO

Wed: Non-Farm Productivity, Wholesale Inventories, Fed Governor Warsh to speak
Notable earnings: AIG, EGLE,FLR, FWLT, FTO, GM, HET, HLYS, MDR, RL, TRLG, TM

Thurs: ECB President Trichet to speak (after interest rate announcement), Fed President Bernanke to speak (about economic outlook)
Notable earnings: COGO, ENER,F, QCOM, STN, TBSI, TOL, URBN, DIS

Fri: Trade Balance, Consumer Sentiment

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And by the way, day light savings has ended and we revert back to standard time on the first Sunday in November. Take note!