Double Trouble

You think we're in a lot of trouble now with the DJIA and other US indices moving wildly and widely, wait till you see this.

One of the lesser noticed index, the S&P 500 (SP500 in bigcharts.com) should be a better gauge of how things are doing as this is an index that is represented by 500 issues, hence the name. Because of what is seen here, it's scary to think that this bear market is just the tip of the iceberg.

It is quite clear in the chart that the S&P500 is right in the midst of a consolidation. Whether this is a double top, or a possible triple top, we still don't know. What we do know is that this seems to be a topping pattern that will reverse the previous uptrend. When this will be, we still don't know.

What we do know is that the support of the index is currently pegged around 770. Should this break, we could see the index drop to a target of 383. That's the scary part here. Things are already battered as it is. It appears there's more where that came from.

Notice also how the MACD has been oscillating throughout the whole duration of the chart. It's been consolidating around the zero line, telling us that as early as 1996, the index has been consolidating all this time.

One more thing to note is that the volume has picked up since the downtrend started October 2007.

Things will get more brutal in the coming months. Try to enjoy your Christmas and try not to think about this yet. It seems to be inevitable anyway.

Frenzied Dow

In what has got to be one of the wildest weeks of trading, the DJIA manages to finish the week higher.  However, it still ended the week on a low note.

This is one week where both the bulls and the bears don’t know if they’re coming or going with the index acting like a bungee cord.  One moment it’s extremely negative, and then give it a few hours, it’s substantially positive.  Go figure.

If we take a look at the weekly chart of DJIA, we’ll notice that the previous week was the worst in the past d

ecade, at the very least.  The selling pressure for that week was so significant that the bar was quite long that this week’s trading is nothing more than an inside bar, meaning that it might succumb to more selling pressure in the coming weeks.   In fact, it’s so bad that the MACD fast line just fell into a ravine.

On the daily chart, it doesn’t show the DJIA settling down anytime soon.  It’s so volatile that a 500 to 800 point trading range is becoming a common phenomenon on a daily basis.  In fact, many investors are now not shocked anymore to see this kind of volatility that they’ve become apathetic to what’s happening and have just decided to let things settle before they even make a move.

At this point, we can only speculate that the market could be starting to consolidate.  The problem is, it’s very hard to see through all this instability to make a firm call.  When in doubt, don’t make a move.

Rotten Apple

Gone are the days when Apple Inc. (Nasdaq: AAPL) has its share price lording it over its rivals.  From a "measly" $40 back in 2005, AAPL has climbed up, with the help of its innovative products the iPod and iPhone, to as high as $200.  Because of this, many have already regarded Steve Jobs as God's gift to technogeeks.

AAPL dove down to as low as $115.44 before climbing back to the $180 area.  From there, it took around 6 months before it nosedived again.  It started diving steeply in September and hasn't stopped since...until last Friday.  Before its performance last Friday, it formed a double top to create a neckline around the $115 area and it was pointing to a downside target of $65.  Friday's market probably had people capitulating that things seem to have turned around suddenly.

From a start of -$3, it ended the day in positive territory, creating 

a bullish outside day although the volume is a bit suspect.  The MACD is not yet reacting that a rally is in the offing but we could check this out and see if the momentum will carry over into next week.  Should this prove to be the reversal point, a quick 3 to 5% profit won't be hard to get.

All this remains up in the air depending on how the markets react to all the efforts being done to stave off a global disaster from happening.

Fluc Me

Anyone ever noticed that in the local market, when the price of a stock reaches a certain point, it suddenly changes in increments in its fluctuation? No? Now that you know, did you ever wonder how it came about?

I don't know how or why it came about but definitely it's an aspect of trading that needs improvement. This is one reason why many don't give too much importance to the top gainers or top losers list since many of those in the list happen to be third liners that had a transaction or so that went up or down by one fluctuation. Yet, the fluctuation was quite huge in percentage.

To give you an example, let's talk about OM (I'd rather not but this happens to be the best example). At the current level, each fluctuation is .001 centavos. This translates to roughly 10% immediately, either way. So no one should be amazed that the stock gained or lost 10% in one day.

The pricing of stocks in the PSE needs revisions to make it a more efficient market. We already have majority of people stereotyping stock trading to legalized gambling, we don't need to fuel their assumptions with an outdated pricing scheme.

The system in the US is quite efficient. Every stock, no matter the price, has their fluctuations at 1 cent. Even Berkshire Hathaway (NYSE:BRK.A, BRK.B), Warren Buffett's holding company and the most expensive stock in the US market, fluctuates generally by one cent. This allows true market forces to dictate the real market value of the stock.

If we could apply that locally, this could be a way that foreign funds will perceive this as a way for our market to become more professional. It's possible, but PSE must do a feasibility study on this and implement the rules immediately.

While I'm at it, I might as well write to Santa Claus and ask for a Maybach.

Which Way is Up?

(reproduced with permission from Absolute Traders)


We had something unusual that happened yesterday. A confluence of different events resulted to what we didn't expect to happen in the end. So where do I start?

Initially, the futures of DJIA were down due to Hurricane Gustav nearing leandfall and this resulted to oil jumping higher. As the hurricane was lashing the southeast area of the mainland, it became weaker, which also resulted to worries from oil traders being eased and this resulted to oil dropping below $110. This now translated to giving the index futures a big boost.

In fact, when the market opened, it was so strong; it even reached an advance of nearly 250 points. Yet, the final result showed the index dropping by 26.60 points. This was a result of reality setting in (global slowdown) and this set oil rallying higher again.

Technically, this resulted in what we call an outside day. This happens when the day's high is higher than the previous day's high, and the low is lower than the previous day's low. It is said that when this happens, the movement follows where the close occurred. In this case, it closed low.

From our standpoint, we are still bearish with the US market as the DJIA seems to be completing a small head & shoulders formation which would serve as a continuation for the downtrend. The market is still very confusing that a lot of traders get disheartened after seeing winning positions turn into losing ones almost overnight. It's best to stay on the sidelines for the moment.

Recommendation: Wait and see.
Support: 11,333
Target: 10,613