Charts of the day

Aspv has completed a break out from an ascending triangle formation. The stock is pulling back at the break out area today and that gives us the entry point with a stop right beneath it at 21.90. Next area of resistance is the gap area and then $27-$28. Fundamentals are very strong on this one with extremely low pe and good growth. http://finance.yahoo.com/q/ae?s=ASPV

I would like to point this chart out as an example of how hard is for the bears out there. HMIN which is a budget hotel operator in China recently broke support at $34.00. The break down came on accelerated volume attracting excited bears (thank GOD I was not one of them) only to skin them alive with a head fake. Most short setups simply do not work in this market.

Is S&P 500 running out of steam?

Interesting day for the markets today. Dow was up and that thanks to IBM and DUPONT but breath was negative on the NYSE and the S&P 500 was down fractionally on higher volume (distribution day). Commodities and commodity stocks the leaders of this bull market were weak across the board while the dogs were barking (for the definition of the word dogs please look under semiconductors). The question is can the semis lead higher without commodity stocks participating. I seriously doubt it. Also momentum indicators such as stochastics and RSI have turned down. Stochastics has been overbought since April 4. If a pull back were to happen the conditions for it are perfect right now.

Shw sold off on high volume today. I am looking for a short entry if it breaks 63.53.



Ctsh retraced 38% of its high volume down move making it another short candidate I am looking at.

Words of Wisdom for the bears

Basic rules of technical analysis is that the trend is your friend.The trend is up in all indices and shorting in an up trend is the like you are swimming upstream on a river. You may have some luck swimming against the current but if you insist doing it you will end up drowned. Using stops does not matter you may delay the process of losing big money but sooner or later you will lose big money. I don't care if you are the best trader in the world (and it is an impossibility that you are because you are trading countertrend) , you keep shorting in a bull market you will get burned. You may get 2-3 profitable trades out of 10, but what good is that.

It is not rocket science. You buy the retracement in an bull market and you short the rallies in a bear market. Last time I looked at my charts we were in a bull market. Also I don't want to hear the market is overbought. The market can stay overbought for a long time in a bull market. Using overbought stochastics or rsi to sell short in a bull market is a guarantee money losing proposition. These are the rules when you trade off oscillators such as stochastics or rsi. In a bull market you buy when the oscillator signals oversold. In a bear market you short when the oscillator signals overbought. In a trading market you sell when the oscillator signals overbought and buy when it signals oversold.

Also I don't want to hear that the market is overvalued. It sells at 16-17 times this year earnings. Where do you see overvaluation. You can argue it is fairly valued but overvalued it is not. S&P 500 was selling 35 times earnings in 2000, that was overvalued, Nikkei was selling 70 times earnings in 1990, that was overvalued.

Yen carry trade status.

There are two charts above, the S&P 500 and the Japanese Yen continuous contract. The highlighted areas show the days that the S&P 500 got into trouble on yen carry trade concerns. The first day, February 27 2007, yen broke out from a quadruple bottom formation and the second day , March 13, yen held the breakout line and rallied strongly. Both of those days were painful for the S&P 500, with big down moves.

The past few days, yen has declined back to the break out line and it seems that is finding support again. The probability of the yen spiking up again increases as this line holds. I think we are at a very important juncture here as the S&P 500 tests the highs of the year and as the yen tests the support line. If the yen somehow manages to fail below support and sell off then the yen carry trade is alive and odds favor a break out on the S&P 500. If the yen holds support and rallies then watch out for trouble on the S&P 500, since the yen carry trade concerns will reappear.

S&P holding support and the 38% Fib line.

Very constuctive action today on the S&P 500. It rallied smartly with an almost 2 to 1 positive breath shrugging off negative news in the subrime lending space http://www.marketwatch.com/news/story/mt-slides-mortgage-woes-first/story.aspx?guid=%7BEB5A4602%2D15FC%2D443B%2D98E7%2D9A1508F65D59%7D&siteid=yhoo&dist=yhoo Support at 1415, the high of 2/28 is holding as well as the 38% fib line at 1410. We could very well be working on an abc up formation with a 1:1, 1480 projection.

CASE STUDY, ICE, HEAD AND SHOULDERS TOP FAILURE.

The best trading opportunity arises when a Head and Shoulder top fails? . The formation itself being the most recognizable chart pattern attracts such a great number of shorts who create the perfect squeeze when the pattern fails. Fear is always stronger that greed so shorts provide enough fuel for a sharp rise in the stock. This is what happens on ICE real time as I am writting

this blog. The neckline at $125.2 was repenetraded to the upside today and it looks that the rise from here can be parabolic. I would not be surprised if I see $140 out of this stock tomorrow.