Thursday, 31 January 2008

Drooling Over DROOY

What a funny symbol, looks like either droop or drool. But speaking of drooling, let's check out this chart of the South African gold miner, DRDGOLD LIMITED (Nasdaq:DROOY).

At the start of 2006 up to Oct. 2006, this has just been going sideways. It started descending from that time and again went sideways at the start of 2007. It was only very recently that DROOY broke out. Broke out of what? From what this looks like, it is an inverted head & shoulders formation. Based on this pattern, the breakout point is 10.75 and this is pointing to an upside target of 15.98. The proper time to cut the losses here is once it goes back under the neckline.

One thing noticeable here is that the volume does not follow the textbook requirement of this pattern. The answer to why that is, is because this pattern has become secularized; meaning, it has surpassed the 10-month gestation period and after taht, there are no guarantees that volume would follow what the textbooks say.

Despite a general market sentiment that is quite bearish (check out my earlier post called D-OW!), DROOY seems to be one of the exceptions as it is actually bullish with this inverted reversal pattern. Even its MACD says so as the fast line is already above the slow line and both are above the zero line. This already gives me teh feeling of bullishness for this stock, aside from the fact that there was a bullish divergence during Dec. 2006 to Mar. 2007.

So what are you waiting for? Everyone get on the gooooooooolllllllld train.

Friday, 25 January 2008

The One That Got Away

What do you call the act of monitoring a stock from its setup to the time it moved and you still didn't do anything about it? Stupidity. That's what I call myself for letting Expedia, Inc. (Nasdaq:EXPE) get away from me.

This online travel agent was going up steadily until October of last year. It created what is known as a double top. Seeing that, I was already planning on shorting the issue once the neckline at 27.49 was broken. On Jan. 10, EXPE broke the neckline but where was I? I was out paying my respects to my godfather's father who passed away recently. I'm not making that an excuse, but rather my stupidity was for forgetting about entering a programmed order for a stock that I knew was about to go down. Hence, opportunity lost. For the trader, this is an unforgiveable sin. So now, I can only look at it and hope that it rallies back to the neckline so I can have another opportunity to short it.

But the way it looks, the momentum for EXPE is accelerating downward as can be seen with its MACD. It hardly looks like there would be any semblance of support at current levels. Looks like this is going in the direction of where many airline stocks are also going...

Saturday, 19 January 2008

D-OW!

When it rains, it pours. Such is the case with the US markets for the first two weeks of 2008. Many are still in denial of whether a recession is coming or even that they're already in one. They're still pinning their hopes on Bush & Bernanke to bail them out of the quagmire they're in. I can't really talk much about what lead to the current situation based on all the politics involved but I can show you what has happened to see just where we are with the current situation.

Since 2003, we see that the Dow Jones Industrial Average has been trading inside a range with an upward bias. It was able to get out of the range back in September 2006. It dropped in late February 2007 due to what is now known as the China Syndrome; where China dropped 8.8% and everyone else got spooked including the US where DJIA lost 4% for that day. The curious thing about what happened was that when it corrected, it was respecting the trendline of the range that it broke out of. An obvious sign of role reversal. After that scare, DJIA was able to shake that off and go even higher by reaching 14,000 in July 2007. It corrected down to 12455 but was able to reverse itself immediately and reach a new high of 14,225 in Oct 2007. But at this time, it seemed that DJIA had a hard time making higher highs. True enough, after another correction, the Dow attempted to try to reach 14,000 again in December 2007 but was able to reach 13,850 only and then it dropped since then.

If we look at it properly, DJIA started going sideways since May 2007 to create what looks like a head and shoulders reversal formation. With this, the neckline of DJIA was being tested for a while around the 12,700 area and it was finally broken just this past week. Although the downside for the Dow is 11,200, I don't believe that it will drop to that level immediately. In fact, I was expecting that when DJIA goes down, it will retest the trendline of the range; which is now at the 12,350 area. Retest it, it did, but it didn't take long for the Dow to re-enter the trading range. The next base that it will search is 11,709 (the high on May 10, 2006) and 11,926 (the low on March 14, 2007).

What about the Nasdaq & and S&P 500? Let's also look at the other major indices of the US market.

The Nasdaq has long been inside a trading range since 2004. It tried to break away from this range late last year but it just could not sustain the momentum. Since this market is heavy with technology stocks, and the technology stocks are the ones that are being battered too, it was a no brainer that Nasdaq was also going to fall like DJIA. In fact, it's on its way to retest the support of the range, currently at the 2200 area. Unlike the Dow which is still bullish for the long term, Nasdaq has come off its high (5132, back in March 2000). It has retraced from that level down to the 1100 area back in 2002 and has risen since then although it is still generally a sideways movement with an upward bias.

Last is the broad-based index, the S&P 500. The movement of this index is very similar to DJIA as it has also made a new high recently and it has come from an upward channel since 2004. Yet there is still a difference between the two. Like the Nasdaq, the S&P 500 was not successful in maintaining a breakout from the trading range late last year and has returned back inside the range. This is not the only glaring thing about this index, the other thing is that it seems to have formed a head & shoulders reversal pattern too, much like DJIA. But should the S&P 500 follow what is expected, it could fall to a downside target of 1238, clearly breaking the whole channel.

Things definitely don't look good for the US at this point. For the short term, DJIA is bearish with the head & shoulders reversing its earlier trend. But this doesn't mean that it's bearish for the long term. Despite that outlook, as a trader, I go with the flow. Right now, the flow is going down, so it's time to look for shorting positions.

Thursday, 3 January 2008

The Market Socks it Back to DGTL

New Year! Sorry, I don't think too many people are inclined to add Happy at this point. Still, this blog wishes you the best for the year.

We thought DGTL was like a rocket ship that already lifted off. Turns out that this ship probably had a leak in its booster rockets.


It returned to breach the support at 1.66 momentarily. But this was all the moment a disciplined trader needed to confirm a cut loss. Yes it closed above 1.66 however we need to look at how it performed for the day. The intraday movement wasn't encouraging as it opened high yet closed somewhere in the middle. Add to that that it breached the support.

Will I buy this again? Sure, but it has to be convincingly strong first before I decide to enter again. Buying at a time when the whole market lacked adrenaline is not really the proper time to do it, especially when it closed just above the support but the intraday chart looks ugly.

Be patient. Wait for the right timing. THEN strike!