Quick link

The debt ceiling woes and suspect formations in the index funds still have me sitting on the sidelines. In the mean time check out Elliot Wave International short quip about fractals pertaining to the stock market. Interesting quick read:

http://www.elliottwave.com/affiliates/featured-commentary/fractal.aspx?code=41526

We will reach the debt ceiling tomorrow

The debt ceiling on US debt is currently at 14.281 trillion dollars.  That’s 14,281,000,000,000 dollars, an unfathomable number is any real sense.  http://www.usdebtclock.org/ provides a very clear picture of how this debt is broken down.

The current US “debt ceiling” is set at 14.292 trillion dollars, this level should be reached tomorrow.  This means that legally the US government cannot spend another dime without a vote to raise the limit for the 75th time since 1962.  The confluence of a weak economy and the Republicans newfound love for fiscal responsibility makes this vital vote a very difficult task indeed.  Once the limit is reached the US treasury will be able to take extraordinary action and support the government with what is effectively the change they scrounge up from the couch (you know, a couple of billions).  The next step would be the first US default on debt which would be tantamount to the fall of the Soviet Union.  Expect a world economic collapse, bloodshed, and a new Mad Max like reality.

This wont happen though.  Our politicians can’t possibly be this stupid so I will not even count this as a possible outcome.

What will happen is a big circus of joshing back and forth between all the various interest groups possibly resulting in big, unpleasant actions by the government.  This despicable toying with our lives will surely spook the market; I know that personally I am staying mostly on the sidelines (I have a small position GNTX).  I think that the market will drop as an initial reaction to the threat of default.  At this point it will depend on what the result of the debt negotiations.  The bulls could take this as an opportunity for good entries while the bears will promote fear and despair.  The ratings agencies might take this as an opportunity to downgrade the US debt from its AAA rating which would plunge the markets even deeper.  It will take extraordinary cooperation and sober thinking on the part of our leaders to get us out of this mess.  Anyone that has taken a good look at our congress and senate lately will see that this most likely won’t happen.

Upcoming week stock picks

ADS
BMO
CIEN
CLS
CMG
GNTX
HAS
HEK
PVX
ROST
RVBD
CY
LVS
AAPL
VMW
CF

Earnings season severely narrowed the pool of eligible stocks, though that’s not necessarily a bad thing.  It can be quite dangerous to buy a stock right before earnings because they can have violent moves in after hours trading that can potentially log big losses (of course it can also log big wins but unless you have a solid knowledge of the fundamentals of the company it’s just playing roulette).  The additional risks of earnings seasons is that a stock related to the the same industry releases an earnings report that causes ripples across the sector.  Stocks are quite a tangled web of influences and perceptions to begin with, earnings season only amplifies that fact.  The only course of action to trade during this time, and at all times, is disciplined risk management.  Of course as I always say, do your own research before making any trades.  It’s your money and you should only trust yourself with it.

SPX analysis Week ending 4.24.11

Click to enlarge

Despite the doom and gloom of the previous post, technically speaking the markets are still very much bullish in the long term.  The monthly charts still show a strong bull market under way while the weekly charts indicate we are in a simply sideways pullback about to start another leg up perhaps to 1400 and above.  As you can see from the Daily chart above we are close to confirming a new uptrend with a close above 1339 confirming a higher high and high low pattern that is the definition of a stage 2 markup.    A subsequent close above 1344 would indicate the resumption of the uptrend on the weekly chart and align the time frames for further upward movement.

Fundamentally speaking the news coming in is a mixed bag.  The market expects positive housing numbers tomorrow, a negative surprise could be damaging.  Unemployment continues it’s downtrend from the 2008 peak though that is partially attributed to expiring benefits.  Consumer confidence remains low with just reason.

Putting my money where my mouth is I am keeping a bullish outlook for the near future but with strong cautions because of the upcoming political turmoil.  This means tighter risk management in the form of tight stops and smaller positions.

Investor Woes

These are interesting times to say the least.  While we have been enjoying a relatively positive time in the markets since September of last year, dark clouds are on the horizon.  The first sign came in the form of the relatively uneventful budget battle in Washington over the budget for the rest of the fiscal year.  With Tea party Republicans calling for $100 billion in cuts on one side and the Democrats finally relenting to a modest compromise of $32 billion, the threat of a government shutdown was enough to temporarily halt the rally which gave me a good entry position for a nice move in LUK.

But now we are faced with bigger fish to fry.  A government shutdown could be seen as only a temporary inconvenience compared to what we are facing now – US default on it’s debt obligations.  You see there was a law that championed fiscal responsibility that was first passed in 1917 that placed a sort of credit limit on US debt that could only be raised by a debate and a vote in Congress.  The big difference here is that when you reach your credit card limit, you must tighten the belt and start paying it back before being able to spend while in Congress, the debt ceiling was raised about a dozen times since WWII without any significant measures to pay it down.  This brings us to present day, with the US debt quickly approaching the current ceiling level of $14.3 trillion dollars, a major showdown between Republicans and Democrats is about to unfold.  Though I sincerely hope that a show is all it is, because surely not even politicians would play with the kind of fire that would unfold if the US defaulted on it’s debt.  Just imagine, we would immediately return to a fiscal collapse much greater than the fall of the titans of 2008.  Soup lines, and shanty towns would become a reality and it could damage US credibility irreparably.  Not to mention the gigantic loss that many would incur in their investments in US government bonds.  It would be a devastation so great that it would shatter the two party system, destroying the credibility of Republicans and Democrats alike (though that might be the only positive outcome).

This threat was enough for the S&P rating agency to threaten to downgrade the US credit rating from it’s prized AAA rating which prompted Timothy Geithner to come out and assure investors that the debt ceiling will definitely be raised.  I wouldn’t be surprised to see some ratings agency regulations surfacing in the national debate as a retaliation to such an affront (after all should a country’s future be at the mercy of unscrupulous shadow rating agencies?)  Coupled with this, June will herald the end of the Fed’s Q2 quantitative easing – a program in which the Federal reserve purchased massive amounts of government debt thus pushing the value of the dollar down, strengthening export, and keeping borrowing costs low.  An effort that has proven to work in stopping the downward spiral of the economy, but not very well in propping it back up to health.  Expect a lot of finger pointing in June on who is to blame for the persistent unemployment problems faced in the country and the evermore limited ways there are to dealing with it.

On that note, we also have the elephant in the room – the fact that corporate profits are higher than ever before but the employment situation hasn’t changed.  This is because corporations have outsourced work to other countries and have become adept masters at tax loop holes.  This means that not only is the US propping up companies that don’t contribute their share to the solution to the fiscal woes, but the country is paying the bills for their run to the exits (after they set the place on fire of course).  This problem will inevitably leads to talks of class war.  Where Republicans will focus solely on taxing the poor to coddle the rich and the Democrats will just as blindly try to put the entire burden on the rich without touching the Middle Class.

All of these issues will be enough to shake investor confidence in the coming months.  It appears even modestly positive second quarter earning results will not be enough to stave off uncertainty.  In the best scenario the people in power will agree to set aside political rhetoric and hash out a reasonable compromise that would spread the burden evenly across the board and help us tighten our belts the right way (warning! Japan lost decade)  in order to avoid the worst scenario which is the Hindenburg moment of the US economy which will plunge the country into a state of despair that could take generations to recover from.  If we stop and take a moment to think of the leadership of this country as a whole we could trust them to do what is right over what will get them votes…  but you can expect a confidence shattering circus show in the process.

Video Lesson: Support and Resistance

This is the first installment of a series of trading videos briefly detailing support and resistance.  The video shows examples of support and resistance and details a few of their characteristics.  I learned a lot by making this, I expect the quality to get better as I go along.

Enjoy!

Coming soon… trading videos

As I am on a temporary lull between work (I’m a freelancer in the entertainment industry) I am now working on a series of trading videos that will visualize what I have in the “learn” section and perhaps make it easier to comprehend.

Check back soon!

I have readers?

I admit it… it’s been a while.  My last post was in September.  I have since returned to the world of entertainment and switched my strategy to longer term holdings… Which I think suit me better.  I got an intense job working for a Saturday Night Live special and neglected both this blog and my trading.  Of course that is just the time the market had a very nice rally just to punish me for my neglect (of course I’m probably just being an egomaniac).

I felt no guilt for leaving this blog as it was for I never got a comment or a message from any of you.  I come back now 6 months later and low and behold some of you appear to still frequent the blog.   I am both pleased and surprised.  My guess is that it’s the learning series I began that perhaps are getting people to come.  Well for those who are coming for this, I have some good news.  I have since acquired some skills in some advanced media programs and will be starting a video series to impart my trading philosophies… so stay tuned!

In the mean time I have a good position in $LUK, this stock stood strong through the Japanese earthquake and built up some pressure which seems to be moving.  My longer term trading means that I am looking at Monthly, Weekly, and Daily charts or Weekly, Daily, and 30 minutes.  My holding time is around 2 weeks to as long as it keeps going.  Looking at $LUK it appears it could be entering a third impulse wave on the monthly charts, a fifth wave on the weekly and what looks like could be a third wave on the Daily chart.  (pardon my lack of specific cycle terminology it escapes me at the moment).  What does this mean?  Could be a further push to 39-40 ish area optimally and then brace for a healthy pullback (which should be a medium term buying opportunity).

Other than that $VRX looks to be setting up for potentially explosive movements.  It could possibly be about to enter a fifth wave on the weekly charts.  It has just closed above a descending triangle line.  Though the volume is a little low for a breakout, it doesn’t worry me too much.  The volume for this rally on the monthly chart he been phenomenal, though it appears to be waning which could indicate the need for a sell off.  This will probably come at the completion of this fifth wave on the weekly chart.  The pullback would probably go down to 38, though it could even be possible for it to go down to the lower half of the 20s depending on the shape it takes on the monthly chart.   This would make for a great long term entry.  Getting in now is a little bit of playing with fire, but I still believe it’s a good risk/reward situation though I might go in with a slightly reduced size.

Click to Enlarge

besides that here is my short watch list of stocks:

CMG
TPX
HAS
EWBC
BEXP
CPX
XEC
BGC
REDF
GLW
PQ
ATML
AZPN
LTD
ROK
ABC
BMO
DST
PVX
ROST
WU

As usual, remember to do your own research on everything I discuss in this blog because in the end it’s your money and your responsibility.

If you like what you read here, please drop a comment. (that’s right I’m reduced to begging)

Happy trading!

- Applenickel

 

Quick note

I’m still studying Elliot Wave theory, so my counts are amateur level at best.  I’m still ambivalent about the current situation in the markets.  We obviously broke above the rising channel that was formed in the SPY but it remains to be seen whether it’s a blow off top and we have quick movement to the downside or if this is an impulse wave and the beginning of a new rally.

Must be prepared for every scenario, only way to win.

Two Elliot counts in this SPY triangle

Click to Enlarge

Here is my bullish count for the current situation in the SPY.  We are completing the D wave of a corrective barrier triangle.  This would indicate a pullback to 106-106.50 area before we head up for a longer term rally.

Click to Enlarge

This is my bearish Elliot count.  Here we are completing the E wave of a corrective contracting triangle which would be bearish and possible send us in a series of impulse waves downwards.  I certainly hope this isn’t the case, as it would be nice for the overall economy and state of things to have a nice rally going into the end of the year.

Either way it looks like some downward movement is due from these levels from my point of view.  I’m into some bearish positions but am keeping my positions small.  I would go full short on a pullback in a downward movement.  At this point it’s too early to be sure about any of it.