Monday, 9 January 2012

Sleepy Monday.


January seasonality is being played out true to textbook. And the earning season is upon us. So while the top is in, do not expect major downside. There will be correction alright but I do not think it will be very deep. Let us look at SPX chart from various time frames. The 1st one is the daily chart.
The lines were drawn on January 4, when I closed my long position. Nothing has changed from that day.  SPX is in the same channel unable to break the 1282 level or exceed the October high. And Stochastic RSI is overbought for a while now.
Hourly SPX chart is clearly showing a symmetric triangle with a sloping trend line. And it will break soon. The 1st breakout is normally the false breakout. I expect SPX will make another attempt tomorrow to break the sloping trend line and turn down.
Five minute SPX chart clearly shows that it has made numerous attempts to break 1282 but failed every time.  As we are in the down cycle, I do not expect it to break tomorrow either. If anything another failed attempt will be the final push.

Today earning season kicked off with Alcoa. Without accounting hoodwinking, it actually made a loss of $34 mil. Or 3 cents per share.  The loss from continuing operations was $193 million, or 18 cents per share, compared with a profit of $172 million, or 15 cents per share in the same quarter of 2010. And it converted the loss into profit with some ingenious accounting entry. That too after reporting higher revenue. How long it takes the market to find out the scam and sell? Alcoa actually burned cash in Q4.

Something happened in the Tech. sector which I have not been able to figure out yet. Google sold off hard and closed down over 4 %. Apple also sold off although not much. QQQ is down but Compq is positive. Overall the NYSE volume was much lower than even December. There is a huge price volume negative divergence for last many sessions and it would count at some point. Plus there are over $ 140 billion bond sale scheduled this week.Commodity sector was weak despite US $ not doing much.
    
I am short from last Thursday (January 5) close. I mentioned in my Friday post (http://bbfinance.blogspot.com/2012/01/there-is-no-decoupling.html ) that my heart is not into shorting this cycle. I will close all my short position by close of 12th January.  And then I plan to spend the rest of January on the side line. My models are telling me that January is going to be a very rough sea without any clear direction. It is going to be so choppy that it will make even a sailor seasick. On one hand January effect and earning season will try to keep the market elevated. On the other hand FX and TA will try to bring the market down.  POMO by the Fed and bond sales by NY Fed will add to this choppiness.  So after I have closed this short position, I better be market neutral.  However I still expect some correction in the next few days.

Thank you for sharing my thoughts by reading http://bbfinance.blogspot.com/ . Please share the posts with your friends and family who may benefit from it. Send your comments and suggestions and follow me on Twitter (@BBFinance) to know my trades as they happen. Wish you a good evening and successful trading. 
Posted by at

11 comments:

  1. Anonymous9 January 2012 at 16:13

    Just a thought: Could it be NFLX move the skewed tech sector indexes today?

    ReplyDelete
  2. World of Finance9 January 2012 at 16:51

    while I don't rule it out, NFLX do not have that much weight in the index.

    ReplyDelete
  3. Marks Education9 January 2012 at 19:29

    I closed GOOG puts and went long GOOG calls today, between 420 and 430 (avg 425). I will add tomorrow at 419-420. Will sell most before earnings.

    ReplyDelete
  4. jonak9 January 2012 at 19:47

    So u r not saying that after jan 12th , we should be long

    ReplyDelete
  5. World of Finance9 January 2012 at 20:35

    Marks, the cycles are still down. So I am not sure about taking a Goog call. Which month?
    Jonak, I never said we should be long after 12 Jan. I said I would be neutral because I am not sure about the direction. Risk of losing money is high.

    ReplyDelete
  6. Jure10 January 2012 at 01:11

    WoF, would new high today on SPX invalidate your analysis of the current cycle? Do you think this cycle could have already bottomed last Thursday on that intraday pullback? Or do you think a break above 1284 would just extend the cycle for a couple of days? I guess price and volume analysis suggest a break to the upside.

    Thanks

    ReplyDelete
  7. Anonymous10 January 2012 at 04:06

    From TexEx, some interesting thoughts here. Thanks to BB for the post. GOOG loves to aim at the big even number during earnings. My chart reads GOOG was overbought at $680 recently. I am not saying it will make it, but it may try and overshoot $700 during earnings.

    ReplyDelete
  8. Anonymous10 January 2012 at 04:32

    1/10/2012, 7:30am ET, The futures are strong positive this morning. Are you going to hold your short positions today or take losses?

    ReplyDelete
  9. Algyros10 January 2012 at 04:49

    When the market goes against one of your calls (as it appears to be doing this morning), do you have a stop loss in mind, or do you wait until a cycle change? Thanks.

    ReplyDelete
  10. World of Finance10 January 2012 at 05:01

    Jure, Algyros,Others,
    I have maintained that there is a possibility of another push up. In fact a break out of this triangle would clear up the future course. I believe the upside is limited. I would be scaling in more short in the morning and hold on to the existing short position.

    ReplyDelete
  11. Algyros10 January 2012 at 05:04

    Thanks. FWIW, I agree with your analysis. If I had to guess, I'd say that around ES 1290 should be the top of this move.

    ReplyDelete

Subscribe to: Post Comments (Atom)