Friday, 24 August 2007

Mal de MER

Ah the company with the bull as its mascot and symbol, how the tides have turned.

Merrill Lynch (NYSE:MER) has been on a steady rise since end-2002. It went sideways in a symmetrical triangle that spanned Jan. 2004 to Sept. 2005. It broke out and reached the target of the triangle in a few months. After continuing its rise, we see it consolidated for around 5 months in 2006, before it still continued its rise. It again went sideways and formed a double top that has quite a good return. So do we turn bearish on MER and call a short? Yes and no.

Yes this is a bearish reversal pattern and once it breaks the neckline at 76.87, we see a probably downside target of 55.61. But wait a minute! Did we forget to look at something else? I think we did. What about the long term support that was made since the end of 2002? The support is still intact and is currently situated at roughly the same price as the downside target of the double top.

So what is happening to MER currently? It is still hovering somewhere near the neckline and has yet to fall to its recent lows. The other thing to consider for traders who are interested in this stock, this is NOT for the faint of heart. Even if MER is priced above $70, this is one very volatile issue.

Either the patient trader will wait this out until it drops to the downside target, or they will get whatever profits they can from here and choose a less cardiac issue.

The prudent trader would choose the latter...and that is not me. Why else do you think I am called the TaranTrader?

Sunday, 19 August 2007

The Good, The Bad and the Ugly

What a hell of a week it has been. The DJIA kept on disintegrating, while the PSEi has been self-destructing at the same time. So let's take a look at the bigger picture. Let's take a look at the DJIA.

As we can see from the chart, the DJIA has been very volatile for the past sessions. I have been debating with my friend, Welles Wilder about what the DJIA is doing. He says he hopes it becomes a falling wedge. I don't agree as the falling wedge is supposed to be pointing to the 4:00 position in the clock. Not only is the supposed wedge pointing sharply lower, if this was a wedge, DJIA already broke through the support.

The other argument I see against the DJIA being a falling wedge is that the MACD's two lines are still diverging away from each other while it accelerates downwards. This tells me that the DJIA's drop isn't over. On the last bar of the chart, we saw that we had a massive return above the support line as this was the day the Fed surprisingly announced a cut in the discount rate it gave to the institutions it lent money to. It may not be the key interest rate, but at least it was something many were cheering for, although I feel it's misplaced. I still remember the one comment that stood out among all the hysteria, this is more of a short covering than anything else. This only means that this is like a band-aid solution. So we should expect more drops. By the way, I feel the DJIA is more of a head and shoulders than a falling wedge. I could be wrong though as the volume somehow doesn't follow the textbook definition. On the other hand, it is very possible that the H&S can now be considered a failed one as it has gone above the neckline again. Yet I feel this is still not over as it hit the 100MA only to go lower again.

Which now brings us to the PSEi. Ever since the big drop last Feb. 28, we have been climbing up to our all time high of 3822. Once the support broke, we have been on a tailspin. We had a 3-day rally but what's interesting to note was that on the 3rd day of the rally, the index tested the 130-day MA and has backed off from there. When we apply the Fibonacci retracement, we have already given back more than 100% of the gains since Feb. 28.

The worst part here is that we are not necessarily following the movements of the DJIA anymore. Even if there are positive days for DJIA, we still keep on dropping. All signs point down, and there is no reversal in sight yet. No wonder many have been fretting. The freefall has broken many supports and we are looking for a base. For now, the nearest that I see is around 2567. Unfortunately, this is no assurance that there will be a bounce off that area should we reach that. Hopefully we don't go down that far.

So what does our title have anything to do with these two indices? Well, the bad is DJIA, the ugly is PSEi. The good? Show me something good then I'll include it here.

Saturday, 11 August 2007

RIMM Shot

Once in a while, something so obvious reveals itself to the technician. The latest issue happens to be Research in Motion (Nasdaq:RIMM).

The maker of the Blackberry has been on an uptrend since Aug. 2006. It gaps up in end-June to the $200 level and has been there ever since. Looks like the happy days of RIMM are numbered.

It seems that the consolidation that RIMM is going through is the head & shoulders top formation. Although it's a bit short in time frame, it still looks valid. We have diminishing volume that accompanies the formation. The neckline is situated at $210.89, which was broken on Aug. 10, 2007. The downside minimum target for this is $183.06. But we also have to note that the 50-day moving average could serve as a support at $198.85.

The MACD has been showing us bearishness since end-July and it is still accelerating downwards. Since the neckline has already been broken, it is safe to presume that it is on its way to our minimum downside target.

With the way the US market has been reeling from the credit sector problems, those who decide to trade this could find another winner waiting in the wings.

Sunday, 5 August 2007

JOYG to the World

Everything seems to be breaking down in the US. One such example is Nasdaq 100 index issue, Joy Global (Nasdaq: JOYG).


As we can see from the chart, for the past 10 months, JOYG has been on a steady climb. Currently, we saw it gap down and form what seems to be an inverted pennant. The pennant is currently breaching the said support of the 10 month uptrend. It hasn't clearly broken down from both the support and the pennant but the inevitable is coming. What gives it away is the momentum of the MACD. Not only is it in a sharp drop, but the 2 lines have diverged away from each other. So the momentum for it to drop is there, we're just waiting for the shoe to drop.

Right now, the support of the pennant is pegged at $47.10, with a downside target of $40.18. That's roughly a 14% return. That's quite good considering this is expected to happen in a very short while.

Not only are my fingers itching to short this, but it's like a hunter waiting in the wings while his prey sits right in front of him. Hopefully, the hunter's name isn't Elmer Fudd.


Yo DJ(IA)! Spin That Wheel!

We wanna know after a few weeks of wild volatility in the most liquid stock market in the world, where the heck is the Dow Jones Industrial Average (DJIA) headed? First, we need to take a look at where it’s at right now.

Currently, the DJIA is 13,181.90, well off the all time high of 14,121. In fact, the DJIA is now playing along the support of 13,213.90 and it’s struggling to stay alive. The short-term support of 13,577 has already been broken around two weeks back, when the concern about the subprime meltdown and the housing sector has now become more general as they’re now looking into the credit sector. That was the time the DJIA lost around 500 points in just two days. The longer term support for the index still holds at 12,689. But if I were to use the recent peak and draw a vertical line to my support and project this upon the breakdown of the support, I am seeing a downside target of 12.289.50 for DJIA.

What compels me to be so bearish? I’ll show you another angle to this.


Notice how the index behaved from Oct. 2006 to Feb. 2007. DJIA just kept making higher highs while the MACD was steadily declining. This was a bearish divergence telling us a change in the trend is coming. The bottom gave way on Feb. 28 when we all experienced the China syndrome. The index was able to shake that off after a month or so and was back on its way to making higher highs. Now look at the index from June to July 2007. Not only was the index more volatile, but the bearish divergence created looks more dangerous. The MACD doesn’t even show any signs that the bearish sentiment is over as there is no reversal yet.

Is all hope lost? Not really. But we shouldn’t expect things to become rosy in an instant either.

Applying the Fibonacci retracement, we see that DJIA is still staying above the 50% retracement level. So this is still a healthy correction…for now. Once when the breakdown happens, all hell will break loose. It could be a repeat of July 26 & 27 when the index lost 500 points, only it’s on a bigger scale. The bigger question now is how does that affect the local market, or any other market in general? There’s a saying that goes, when the US sneezes, everyone else catches a cold. That is what is happening right now as DJIA has been finishing every trading session lately in triple digits, whether up or down. So the effect is quite significant on every other market, as many tend to follow the US market’s direction. The same is true here only there have been occasions when we did the exact opposite by dropping further when the DJIA went up the previous night.

For those who are going long in the US, good luck to you. Unless the issue shows tremendous strength, I wouldn’t stay long for the moment. It’s shorting time!