Where is the stock market going?

                     

The US stock market since 2009 has rallied for more than 5 ½ years. The benchmark S&P 500 index has moved up from 666.79 to 9/17/14 ‘s 2001.57. This translates to 1334.78 points and 200% gains and there has not been any correction more than 10% during this period.  People are wondering is the big correction coming and where is the market going from this point onward? There are a lot of things need to be sort out first in order to answer this simple but complex question.

There is lot of events happening in the world that causes concerns. The world is complicate geo-politically. There are continue chaos in the Middle East among countries such as Iraq, Syria, Israel, Palestine and the emerging of the ISIS terrorist group which threatens the safety of the world.  And then there’s the Ukraine civil war which has caused the new cold war between Russia and its western rivals---the US and the European countries. Some has even suggested the third world war is brewing because of this.  Any mishandling of these situations can cause havoc to the economic of the world and the stock market. At the present, the economic sanctions applied against Russia by the Western countries not only is harming Russia but has negatively impacting the economic recovery of the European countries. As if this is not enough the independent referendum in Scotland to be held tomorrow if successful will hurt England economically. Japan is weak economically, China is sensing slow down and the fragile US economic growth can easily be wipe out by the weakness of the rest of the world. At the same time, let us not forget the quickly spreading of the Ebola disease in Africa. It will threaten a lot of lives in the world if the situation is not contained. So the above are concerns on the back of investors mind.

With so many negatives, what is driving the stock market up? The answer is very simple, low interest rate and quantitative easing. These feats are not only used by the US Federal reserve but are also adopted by the central banks around the world. These central banks include European, Japan and China, the most influential economies of the world.  As the central banks are printing money and keep interest low, it encouraged corporation and individuals to borrow. Corporation use the borrowed money to fund projects and buy back their own stocks. Investors borrow money to invest in the stock market and real estates. Since interest rate is at record low, there is no other investment with returns that beat the stock market return.  This is why money keeps piling into the stock market and the stock market continues to rally. There is a well-known saying on Wall Street which is: Don’t fight the Fed.

After we have an understanding of the market’s present situation,what can investors do? After all the situation mentioned above are so complicated and we have no way of knowing what will happen next. And it would drive you crazy to analyze every situation in detail. So, what investors can do is simple, follow the existing trend. After all, the trend is your friend is what they say. What is the stock market trend looks like? The stock market trend is up. How do we know? That is what a price chart is most useful for. It keeps things simple and avoids confusion. The following is a price chart for the S&P 500 covering last few months of price action. As we can see, the S&P 500 is now trading above its 50 and 200 day moving averages, as many market practitioner can immediately tell you that the S&P 500’s trend is up. Since it is so close to its all time high, it may follow the strength of the Dow and make new historic high since the Dow made new high intra-day today. So at this time, investors should keep their stocks and ride the trend up. The question is when do we start to get worry? The answer is when the S&P 500 drops below its 50 day moving average at 1973 for short term trader to get out and for long term investors when the S&P 500 drops below its 200 day moving average at 1890. 

Money Flow

From where are money coming out, and to where money is going into? The following 9 charts tell the story.  It looks like US dollar (UUP) and Chinese A shares (CAF) are in favor, S&P 500 and German equities are in danger, and US Long Term Treasuries(TLT) , High yield Bond (JNK), Gold (GLD), Crude Oil (USO) and Commodities (DBC) are being sold.

US Stock Short And Intermediate Term Trends Have Change From Up To Down

U.S. stocks dropped sharply this morning at the open,  major indices fell by an average of 1.5% now. Portuguese lender Banco Espirito Santo 's  huge net loss in earning led to its stock dropped a record 50 percent on Thursday's trading. Eurozone inflation rate slowed to its lowest level in nearly five years and brought about the economy is too weak to push price growth concerns. Argentina debt defaulted the second time in 12 years and may led to financial crisis. EU and the U.S. strengthened Russia economic sanctions has led to concern that the EU economy will also be hurt. These negatives all contributed to sharp losses in European stock markets . Germany's DAX index fell by nearly 2%. In the U.S., July Chicago purchasing managers index came in at  52.6 much lower than the 63.2 consensus. Yield of the 10 year treasury continues to rise today reflecting worry that the Fed may hike rate early.  In addition to all the above mentioned negatives,  former Federal Reserve Chairman Alan Greenspan said after a long and big recovery in the stock market, investors should expect sharp pull back some time. The US stock market is under tremendous down side pressure and down turn likely continues. Technically,  the Dow and the S & P 500 have dropped below their 50 day moving averages while the Russell 2000 fell below its 200 days moving average. U.S. stock market's short and intermediate term trend have changed from up to down. Dow will likely fall toward its 200 days moving average 16316 level near term.  Dow, Nasdaq, S & P 500 and Russell 2000 near term supports are 16641,4360,1910 and 1100 respectively .

List Of Warning Signs For The US Stock Market

Is the US stock market ready for a larger correction? The followings are 10 warning signs:

1. Half of Dow Jones Industrial Index components are in  down trend. Components that are trading below their 200 day moving averages are BA, GE, MCD, PF, UTX, WMT, PFE and KO. Componets that are trading below their 50 day moving averages are JNJ, TRV, AXP, DD, CAT, V and MMM.

2. The Russell 2000 is on the verge of breaking its 200 day moving average while the Dow is on the verge of  breaking below its 50 day moving average.

3. Major and influential stock sectors that are in down trend : Semiconductor (SOXX), Industrials (XLI), Home Builders (XHB), Retailers (XRT), Consumer Staples (XLP) and Shipping (SEA).

4. 10 year treasury yield jump significantly on concern that interest rate are rising on the news of better than expected 2nd quarter GDP.

5. Major European stock markets such as Germany, UK and France are forming bearish Rounding Top Patterns. Their weakness will likely negatively impact the US market.

6. Second quarter earning reports are winding down. There will be lesser positive news to help the market. 

7. European Union and US have executed economic sanctions against Russia.

8. Argentina is technically in default and may bring about financial crisis.

9. Geographical unrest still going on in Ukraine, Gaza, Syria and Libya.

10. August and September combine are the worst 2 months for stock since 1950.

Weakness In Dow Is No Good For The Market

Weakness in the  Dow Jones Industrial Average will likely dragged down the U.S. stock market. Today, the Dow fell below its 50 day moving average 16873 level, its trend has been changed from up to down. Dow's next important support level is 16638. Inside the Dow,  stocks trade below 200 day long-term moving averages are: BA, GE, MCD, PG, UTX, WMT, PFE and KO. Stocks trade below intermediate term 50 day moving average are : JNJ, TRV, AXP, DD, CAT, MMM and V.

 

Stock Market Trend Is Still Up

Dow, Nasdaq, S & P 500 and Russell 2000 are now trading at 16938.25 +31.56, 4406.11 +16.65, 1172.82 +3.98 and 1967.70 +0.64 respectively. Today's strong sectors are solar TAN, Gold GDX, social networking  SOCL, Internet FDN, software IGV and networking IGN. Weak sector is utililites  XLU. Standard & Poor's 500 biggest gainers are: AA +4.3%, HAR +2.8%, RAI +2.6%. The largest decliners in the S & P 500 are: GRMN -5.9%, MU-1.9%, PCL-1.8%. 10 year bond yield rose 0.014% to 2.578%. August crude futures fell $ 0.74 to $ 102.66 a barrel. August gold futures rose $ 9.4 an ounce to $ 1,325.90.


U.S. stocks opened up this morning and have been rising slowly. Major indices rose by an average of about 0.2%. After two days of sharp drop, U.S.  stocks are rebounding.  Better than expected Alcoa (AA) earning and calm European markets helped. Technically,  Dow, S & P 500 and Nasdaq were able to hold their 20-day moving average support yesterday. These levels are 16886,1958 and 4381 respectively. Technically the stock market trend is still up. It will be a buy signal if the Dow can regain 17,000 level.  Analysts are generally optimistic on the second quarter corporate earnings and this is should bode well for the market. Minutes of the Fed's June meeting will be released at 11:00AM Pacific time today. This will likely cause market volatility and possibly a trigger for rally. Dow, Nasdaq, S & P 500 and Russell 2000's  major resistances are 17000,4425,1985 and 1181 respectivley. Supports are: 16886,4381,1958 and 1167 respectively.

Stock Market Will Likely Go Up Again After Dow Finished Restesting 17000

Dow, Nasdaq, S & P 500 and Russell 2000 closed  at 17024.21-44.05,4451.53 -34.40,1977.65 and 1186.87-21.31 respectively. Today's strong sectors are Utilities XLU, TechnologyXLK  and Consumer Staples XLP. Weak sectors are solar TAN, biotechnology IBB, gold GDX, home builders XHB, social networking SOCL, software IGV, retail XRT and transportation IYT. Standard & Poor 500's biggest gainers are: PETM +2.2%, AAPL +1.9%, COH +1.9%. The largest decliners in the S & P 500 stocks are: CHK -4.7%, DAL-4.6%,  BTU-3.6%%. 10year bond yield fell 0.031 percent to 2.617 percent. August crude futures fell $ 0.59 to $ 103.47 a barrel. August gold futures fell $ 1.2 an ounce to $ 1,319.40.


U.S. stocks opened down this morning, and stayed down at the close. Russell 2000 Index and the Nasdaq Composite fell the most, a decrease of approximately 1.7% and 0.8% respectively. I think the big drops in Russell 2000 is probably due to confusions and adjustments from last week's annual stock adjustments and is not a trend. The Dow and S & P 500 fell by a smaller amount of 0.3% and 0.4%, respectively. There's no economic news to drive the stock market today. However weak European stocks have caused U.S. investors to take profit.  Last week, the S & P 500 and the Dow both made new highs. Dow has broken above the psychological barrier of 17,000 and stock market momentum is up. The fact that the the Dow can hold above 17,000 level today is good performance. The general market will likely go up again if the Dow can stay above 17,000 level for another day or two. S & P 500's 2,000 level is the next key resistance level and this level will serve like a magnet in pulling the general market up. Second-quarter corporate earnings report starts tomorrow, the generally optimism about the 2nd quarter corporate earnings should serve as catalyst for the market's further advance. Dow, Nasdaq, S & P 500 and Russell 2000's  major resistances are: 17200,4500,2000 and 1213 respectively. Supports are: 17000,4424,1975 and 1185 respectively.

Factors Bullish For Stocks Short Term

Bullish factors for the US stock market in the short term:

1. Dow and S&P 500 at all time high, momentum is up.
2. S&P 500's 2000 round number will serve as an magnet pulling stocks up
3. Immediate reported 2nd quarter earnings reports are likely to be good
4. Investors and fund manager have been shorting stocks to hedge their portfolio is bullish as they cover.

The Stock Market Can Be Beaten

In 1992, during the CNBC/USA Today's National Investment Challenge, I used the most aggressive options strategy and parleyed $500,000 to over $6,000,000 in the course of 3 months. The gain was 1125% and I won the professional options division contest. But that's simulated money and my reward money was only $10,000.

22 years later, trying to have fun after retirement,  I decided to test the same options strategy with real money. The goal is to match or better Larry William's (or was it somebody else) who started with $5,000 and turn it into $1 million by trading futures in a year and that's equal to 19000% annual return on the initial capital. In this challenge, instead of using futures I would trade options and individual stocks.

I funded the account with $6000 near the end of March 2014 and as of today (June 6, 2014) net realized gain is $582,177 which translates into 9600% gain in  the last 2 1/2 months.  I traded 43 times during the period which includes TZA options, varies stock options and varies stocks. I have 75% of the trades were winning trades. However, most of the gains were from TZA put and call options. I traded TZA options 23 times within this period and only 2 of the trades were losing trades. So the winning percentage for TZA trades were 91%.

These have been an amazing 2 1/2 months. At first, I thought I got lucky. But then it couldn't have been because I traded 43 times and 91% accuracy on timing the TZA which is an ETF tracking the Russell 2000 index. And besides I always have been confident in my market timing. But then before these all happened I had a dream in which I had both hands full of bird eggs of different colors and I looked up the Chinese dream analysis on the web and it meant I have a fortune coming.  So I now think it's because of fate, luck and skill combined for the great result. Any way , a 9600% return on capital in 2 1/2 months is a crazy return I haven't heard of until now and the public ought to be told. With this kind of progress, I may be able to reach my 1 million target by August sometime.

I declared I have the market beaten at least for the last 2 1/2 months. I want to brag about it now when I still can before the market opens next week. So I am also telling you novice trader out there, there is hope in trading.  The following are the results:

 Realized Gains/ Losses:

Account Value Graph:

CNBC/USA Today National Investment Challenge Article:

NQ Price Is Taking Revenge After Came Down Over 70% Since February

NQ came down from February high of 22.33 to a low of 6.25 last week. The stock is up over 34% today. Stock has a float of 22 million shares and today's trading is now over 26 million shares which equals to over 7 times average volume. An independent audit has found that publicly reported financials have been "verifiable and consistent" with actual cash balances and revenue.  The stock, had been depressed by Muddy Waters report last October accusing the company of financial wrong doings.  The auditor's report may bring about significant recovery of the stock price. Technically, NQ has formed the most bullish Island Reversal pattern today. It also filled a gap created in mid May. It's trend is now up . Next resistance is the 50 day moving average near 12. Further price recovery may take it up to 200 day moving average near 16.

FB Is A Buy

Face Book （FB）broke above 50 day and  100 day moving averages and is forming a bullish Round Bottom chart formation. It's trend has turned up. Target is 70.

Reasons To Buy Apple (AAPL) Stock

Reasons to buy Apple (AAPL) stock:

.Price broke above 600, bullish Cup and Handle pattern, target 700.

.Stock to split 1 to 7 in June.

.Company announced additional $30B to a total of $90B stock buy back through next year.

.Corporate raider Carl Icahn increased his AAPL ownership by 2.8 million shares to a total of 7.5 million shares.

.iPhone 6 and other new products to be introduced starting August.


AAPL Weekly Chart: 

Mid-Session Market Comment 05-15-14

U.S. stocks fell this morning at the open and have been trending down. At the present major indices are falling more than 1% on average.  U.S. April consumer price index came in higher than expected ,industrial production fell 0.6% in April and fell the most in five years, 10 year Treasury yield has fallen below 2.5 percent indicating skepticism on US economic recovery.  Technically, earlier the S & P 500 fell slightly below the 50-day MA 1867 , Dow fell to about 18 points to the 50-day MA at 16400, Russell 2000 touched February low of 1082 level and they are all rebounding . These important supports are the basis for a short-term market bounce. Russell 2000 may bounce towards 1116. Although market's bullish sentiment has weaken after today's fierce selling. The above mentioned support levels will likely be retested after a brief bounce. 

Mid-Session Market comment 05-14-2014

U.S. stock market opened down this morning, it then slipped more and have been maintaining its decline. The Russell 2000 decrease of approximately 0.8%, while other indexes fell by an average of about 0.2%. U.S. April PPI came in at 0.6%, substantially higher than 0.2% estimate raised worry of  Fed tightening is to accelerate. Yield of the 10 year Treasury fallen below three and a half month trading range low makes people to think the US economy might not be as well as expected. Meanwhile, the Ukraine tension continues and the territorial dispute in South China Sea between China and Vietnam has led to violent riot against Chinese and Taiwan citizens in southern Vietnam. Two are reported death and thousands of Taiwanese and Chinese factory were destroyed. Technically, the Russell 2000 today continues to plunge and has fallen below its 200-day moving average 1115 level again. Its bearish trend continues. It is looking like the divergence between Dow and S & P 500's up trend and the Nasdaq Russell 2000's down trend may have resolved with the down trend being the winning side. Down side action likely continues today with the Russell 2000 support at 1091 and Dow support at 16585.

Thoughts On The Market

Dow broke out to new high. High momentum growth stocks are having oversold bounce but their trend is still bearish. The divergence in the stock market is a concern. The negative trend may eventually win out as we consider the situation in Ukraine is intensifying, whether the Dow is able to close above its previous intra-day high at 16631, will the S & P 500 able to follow Dow and break through its 1897 high, both the Nasdaq and the Russell 2000 have only 1 more day of bounce before hitting their 50-day moving average resistances and VIX visited 11.88 multi-month low today and is showing extreme optimism.

Mid-Session Market Comment 05-09-2014

U.S. stock market opened this morning slightly down, turned up and is now trading mixed. Ukrainian pro-Russian rebels planned to held referendum on May 11 in Donetsk and Luhansk regions may lead to more tension , Chinese low inflation implies economic slowdown and weak European stock markets are negative factors for US stocks.  Technically Russell 2000 is still below its 200-day moving average 1115, the trend is down. It may go down and test February low at 1082. S & P 500 is very close to its 50 days moving average 1865 level, it may fall below at any time. If that happens, it may fall toward 1842. So today's main focus is whether the S & P 500 can hold 1865. Due to referendum in Ukraine this coming Sunday, investors will be cautious ahead of the weekend and it is likely that the stock market will bias to down for the rest of the session. 

Mid-Session Market Comment 05-07-2014

U.S. stocks rose this morning at the open, they then fell, and are now rebounding. Major indices are now trading mixed with Dow and S&P 500 up and Nasdaq and Russell 2000 down. Putin's intention to solve the Ukrainian crisis and Federal Reserve Chairman Janet Yellen's optimism on the economy and willingness to continue maintaining accommodative policy are positives for the stock market . But significantly weaker social network SOCL, Internet FDN and biotechnology IBB sectors dragged down NASDAQ Composite and are weighing on the general market. Technically, the Russell 2000 fell below its 200-day moving average at 1114  caused it to drop again early this morning . However, when it  dropped to about 11 points near its February low of 1082, it started to bounce. As for the Dow , after testing its 50 day moving average 16363 level earlier, it bounced up strongly again and have gone from negative to positive. The stock market may have bottomed out short-term and likely begin a rebound. Dow may challenge its record high at 16,631 level again.

Stock Sectors That Are Dragging The Market Down

Want to know why the stock market is not doing well? Take a look at the charts of a whole variety of stock sectors that are not doing well. Some of them are already in bear market (price below 200 day moving averages) while some of them are in solid down trend (price below 50and 100 day moving averages). These weak sectors are Social Media SOCL, Cloud Computing SKYY, Internet FDN, Software IGV, Home Builders XHB, Retailers XRT, Biotechs IBB, Financials XLF, Consumer Discretionary XLY , Brokerages IAI, Networking IGN and Solar TAN.                                                                                                                                        
                                                                                                                                            

Mid-Session Market Comment 05-06-2014

U.S. stocks fell this morning at the opened, Dow was down about 100 points earlier, rebounded and is now falling again . Major indices fell by about 0.5% on average. Tense situation in Ukraine continues and downside actions of the the  European stock markets negatively impacting US stocks. Weakness in Social network SOCL, home builders XHB, Financials XLF, Internet FDN, and retailers XRT sectors also weighed on the market. Technically, the Dow and S & P 500 are above the 50 day moving averages, their trends are up but the Nasdaq and the Russell 2000 are below their 50 days and 100 days moving averages, their trends are down. For the last couple of days the Dow has been trying to hold its 50-day MA at 16358 while the Russell 2000 attempt to hold above its 200 day moving average at 1114 , if these support levels got pierced to the down side, indexes will continue to test their lows. Due to  increasing tensions in Ukraine and the S & P 500 VIX volatility index display overly optimistic investor sentiment, coupled with May is a weak month for stock, the chance of these support levels breaking down is high.

Banks Will Be Drags For the Market Next Week

JP Morgan Chase (JPM) sees 2nd quarter revenue to drop 20% from the same time last year. JPM is down 1.15% during after hour trading. Looking at charts of  major banks and they are not looking good. Bank of America (BAC), JP Morgan Chase (JPM), Citibank (C) and Goldman Sachs (GS) are all below their 50,100 and 200 day moving averages and trends are all down. The banking sectors will likely be drags for the stock market next week.

Is The Treasury Market Telling Us Something?

In the face of a strong Non Farm Payroll Report, US Treasuries dropped initially but rallied sharply mid-session and have been staying strong. 10 year yield rose to 2.666% intially then dropped back down to 2.574%, a 6 month low. Why are they behaving this way? Are bond traders seeing something they don't like in the Non Farm Payroll Report or they are seeking safe haven as the Ukraine tension escalates? Who knows, it may be because of both. The only concern I have is the 10 year yield is on the verge of breaking down after 3 months of side way actions. When the break down happens, stock investors may get scare and sell stocks off. This may be one of the reason why stocks reversed from up to down today.

Stock Market Likely Coming Down

$DJIA ,$COMPQ ,$SPX ,$RUT Dow's reversal to the downside after making new high this morning, continue weakness in internet ,social media and biotech sectors, big rally in gold and treasuries as safe haven all are bearish factors for the general market. It is likely the general market will turn down.

What Is Causing Today's Market Swing And What Next

The US stock market swung wildly today with the Dow up 100, down 110 mid-session and closed up 90. I am listing the following factors in order of importance according to me:

1. Full Moon, total lunar eclipse---Bullish and Bearish

2. Ukraine tension escalates---Bearish

3. Big market drops in Shanghai, Germany, UK and France---Bearish

4. Coca Cola and Johnson & Johnson both reported good earnings---Bullish

4. US housing index and Empire State Survey worse than expectation---Bearish

4. Dow and S&P 500 met resistances at their 50 day moving averages and Russell 2000 broke support at 200 day moving average. ---Bearish

5. Nasdaq Composite found support at 200 day moving average and Russell 2000 recovered above 200day moving average.---Bullish

As for the near future, the stock market has bottomed out short term technically, stock market should move up tomorrow with the help of better than expected earnings from Intel and Yahoo. Dow may move up to test its all time high at 16631.

Charts for major market indexes, strong ETFs and the strong stock within them:

Importance of Technical Analysis

I am a die hard fan of technical analysis. I trust the chart because it have been helping me making good money. I am quoting CNBC's Bob Pasani who said it best:

"Seriously: How can you possibly have a lot of faith in fundamental analysis when, for example, YELP (YELP) goes from $100 to $60 in six weeks? Or Netflix (NFLX) goes from $450 to $320 in the same period? Of course, fundamental guys argue that stocks get overvalued. Duh. But say what you will about technical analysis: If you are in a sector where fast money is prevalent, you are a fool if you don't have very good entry and exit points, most of which will be built around technical. "

Fed QE causing bubbles on SOCL, IBB, FDN etc.

Fed Governor Dan Tarullo once said:  "Expectations fostered by forward guidance of continued low rates, may be incentivizing financial market actors to take on additional risks to boost margins, thereby contributing to unsustainable increases in asset prices and a consequent buildup of systemic vulnerabilities."

The recent bubble bursting on high flying sectors such as Biotech IBB ,Social Media SOCL , Internet FDN and other momentum stocks have confirmed his worries. They are either already broken or on the verge of breaking below their 200 day moving averages. Breaking below 200 day moving averages means they are entering bear market and prolong down turn is to be expected.

Mid-Session Market Comment

Major U.S. market indices opened this morning with small losses, they then began to plunge 10 minutes after trading start , they are now down sharply by over 1%. Yesterday's exuberance on interest rate may not rise as early as expectation after Fed meeting minutes were released has subsided today. Instead, news about Russia may stop the supply of natural gas to Ukraine and Europe raised investor concerns on increasing tension in Ukraine situation. Pessimism on corporate earnings also asserts downward pressure on the market.  High momentum sectors such as Biotechnology IBB, Internet FDN and social networking SOCL again led the stock market down. Technically, both the Nasdaq and the Russell 2000  after regaining 100 days moving averages yesterday have fallen below them again today. Today's bearish action has generated sell signals for these two indexes.  Their next supports are 4000 and 1100 respectively. Blue-chip indexes, the Dow and the S & P 500 have also been dragged down ,they are falling towards their 50-day moving average support at 16173 and 1843 respectively. The stock market will likely continue to go down all day today.