Wilshire 5000 and a new upside target

Ok, so I sold those X puts for a substantial loss, but I am glad for the lesson learned. I was getting really cocky after beat the S&P by a solid 7% in February, and probably needed to be taken down a peg - so far in March, I am deeply in the red, and even more deeply humbled.

For now let's look at the Wilshire 5000. The Wilshire 5000 is a basket of... you guessed it, 5000 stocks. I feel it better represents the market as a whole, and the lines to both the upside and downside are a lot smoother than everything except the Russel 2000. However, the Russel 2000 only follows smallcaps, and that's way too exclusive to get real market breadth.

Here's my new target for the Wilshire 5000.



This brings us back to the point on the Wilshire that started it all... that fateful September when Lehman collapsed. This would effectively erase the nightmare that was the financial collapse. Is that a good thing for markets? I'm not entirely sure, but at any rate if the Wilshire @12500 doesn't at least pullback and retest support, I'd be pretty surprised. I'd like to go long again, but I honestly need to see valuations that make sense. From a technical and fundamental perspective, this market frankly sucks balls. Traders are just chasing the liquidity granted by the Fed, which is all well and good, but is just hard to play for folks like me.

Anyways,... I want to keep updating the blog, but I am going to be a lot more passive about trading until these two weeks (approximately) pass me by.

US Steel Corp - and Deprogramming my Bias

I grew up listening to the trading exploits of my father, an elliot wave counting permabear. He would spend hours reading me the Wall Street Journal, and telling me that at some point, a huge corrective wave would come in and blow everyone out of the water. That was his thing, that's how he made his bacon - or lost it in some cases. When I started trading, all I could see were potential 5 waves down, or ending diagnals that would soon thrust themselves into the hearts of blood-sucking bulls.... Well I started trading in May 2009.... the fact I still have my trading account, and that it is bigger than when I started is really amazing.

However, it's time to become my own man... my own trader, and my own analyst. These old bearish habits have cost me a lot of money (well, not cost me in real dollars, but ... think of it as opportunity costs). My attitude needs to change... my outlook, discipline, and objectivity need refining.

At any rate, one stock I've loved both long and short for the past few months has been US Steel Corp. I've been as objective on it as any trader can be. I liked it at 35, loathed it at 66, loved it again at 43, and am now again giving it the cold shoulder.

Here's why:



I'll be totally honest. I bought put contracts on X... waaay too early; in the 58 dollar range to be precise. I have paid dearly for jumping the gun, but being in a day early and a dollar deep seems to be my Modus Operandi, but I very seldom ever am on the wrong side of trades like this, so the bile I'm tasting is probably only temporary. However, March on the whole hasn't been too good to me for trading. I don't see many long positions I like at all - I made a nice trade in going long on BNS, and another going long on STT, but otherwise it's just been a small string of small losses from being stopped out on the short side.

Now, remember... I want to stop being a bear, but I honestly can't see many trades I like in the stocks I follow.

I hope that after the 'three-star doji' day on the Dow, that it might finally take a break so that I can go long and practice being a bull - I'd also like to get myself out of this dreadful hole I am in with X - hopefully my intuition doesn't fail me this time.

SPX looks toppy - but...

Unlike the DOW, which was unable to penetrate the trend line from the September top of 2008, the S&P 500, peaked its head above in the last few trading days only to retreat back under the line today (Wednesday).

Divergences show continued lack of buying into equities, and general profit taking that there isn't huge institutional buying/government buying.

My concern is that despite all these bearish warning signs, that indeed the line WAS violated, and also that it seems to be pretty common knowledge in the finance blogosphere that the government is attempting to hold up this market ala Atlas and the globe.

How much longer could it last? Well if the MXI (Global Materials index) is any indicator... not long. Materials bottomed 5 months before the rest of the market, and also has topped the first (I still stand by the materials top).

That being said, although there is weakness in both JXI and IXC (the utilities and energy indexes respectively) There is no absolute death blow landed on either of these groups. For example, the IXC has seen slippage below its uptrending line before, and has come back to perform quite well over that line. The JXI looks a little weaker, but unlike Materials being the first to top/bottom, JXI (the utilities) always seems to be last, and so I still think it may have a bit of a ways to go.

One additional interesting tidbit that I thought was worth mentioning is that every other market rally in the last 10 years hasn't lasted as long as this one. Some have come close, but 10 months without some sort of correction is basically unheard of. I am still sitting on my hands and just buying options here and there until things get settled.

DJIA chart!

So, I took profits on my utilities, took profits on my DTO (short oil ETN), and also covered my Celanese Corp short. All of these moves were winners. :D The only position I have open left are my RIG puts. (which are in the red as of now, but I am still confident they will be in or near the money by the time they expire; FEB 20s).

Everyone has been looking for a correction, top, reversal, you name it in the market recently, and I would be lying if I said I wasn't looking for the same thing. However, I think the top in blue chips is in, small and midcaps might rally a little bit for options expiry, and that the materials sector (as already stated) is finished, and energy and utilities are close as well.

Here is a chart of the DJIA that I whipped up. Compare now with 2006. Compare the unemployment, earnings reports, trade levels, budget deficits, the whole nine yards then, with what we have now. DOW 10700 was a huge level of resistance, and subsequently support and eventually became the springboard into what would become the finance and bubble mania. Also on this weekly chart for the first time we have negative divergence on the charts, and are in bubble type levels of being overbought. Even if we don't have what Elliot Wavers are hyping to be P3, we are having a correction. We haven't had one for a long time, and we're due. Really, really... over.. due.

Edison International

Edison International (EIX)

As mentioned in my last post, I am bearish on the materials sector (especially chemicals), neutral on energy, and decidedly bullish on utilities (at least relative to the other sectors I analyze). This chart of all the utilities I have scanned through is my favourite. Clear trading channel starting from the March lows, positive divergence on the daily chart, just above the 50 SMA, (which will hopefully provide support), and also the yearly chart shows immense support at $34 a share. EIX is one of those plays that I hope to buy in to, make a run, and then just hold on to free shares instead of taking profits fully. It has a nice dividend yield, and those are the kinds of things I like to just sit on and wait to enjoy for a later date.

Materials top?

Hello!

Other than the Canadian dollar chart below, I have been on hiatus for a long time. Since my previous post in June/July during the supposed H&S (which was the end of Wave 2 of 5? or B or A-C), ended in a little embarrassment for me, I took time off the re-evaluate my trading strategy.

In that time I decided I would use inter-market analysis more, and also cut down on the amount of charts I followed. I felt that the Materials, Energy, and Utilities industries appealed to me the most, and so since that fateful July... month... I have not ventured out of that comfort zone (except for a few extreme cases). Because of the sectors I look at, I spend a lot of time looking at the MXI, JXI, and IXC indexes, as well as oil, precious metals, base metals, and natural gas prices. Additionally, I watch the AUD/USD and USD/CAD relationships a lot as well.

Well, Materials has been my favourite sector since I trimmed down to 3, but I became bearish as of Thursday, which was yesterday. I shorted (CE) Celanese Corporation at 34.55 (with some success so far), (SSRI) Silver Standard Resources Inc at 27.76 (with no success thus far), and an old favourite long of mine, (PCX) Pacific Coal Corporation, at 19.52 with what I will call a kick to the head.

1 out of 3 isn't very good. However, looking at the chart I provided, and the overbought levels of the CAD and AUD against the USD, you could understand why I don't like the materials sector. Time will tell (probably by next friday) whether I am right or not, but I honestly feel that China is sending a message with their short-term T-Bill interest rate hike, and are also knee deep in it, because they're buying so much from Australia and South America with brutally unfavourable interest rates.

Anyways, there is some fundamental and technical reasons for my bearishness on the sector - so I have gone short, (and gone long in Utilities).

Thanks for reading!

CDN

I am currently holding a short position in a spot oil ETN and am getting crushed. Here was the reason for my move. If I am missing anything, please illuminate me so I can get the hell out while I still have some money to trade with. The only think I can even imagine going awry is a further CDN breakout leading into an upside down head and shoulders and officially decimating my short and easily sending oil to $200/barrel.