YHOO and VMW

VMW appears to have consolidated and likely to uptrend. The decline was brutal after the post-IPO roller coaster. It did under perform both Nasdaq 100 and S&P 500. Recent action of filling the gap is promising but the resistance at $32.50 is formidable. I will not be surprised if it rolls over there and tests support against the rising support line and further down at $26.50.


VMW daily



Yahoo has been steadily rising since Nov 09 lows. The broader market lows of Mar 09 did hardly affect this already battered ticker. The merger/takeover/sale news have been providing for enough gaps. I don't envy the shareholders of this cardio-vascular stimulator :)

YHOO daily



Comparing both VMW and YHOO since Aug 2007 (debut of VMW) tells us that both of these have underperformed Nasdaq 100 and S&P 500. Some lucky (hmmm) people got to sell VMW 3 months post IPO and did sang all the way to the bank but since then the ride has been bumpy. Now that the IPO excitement has long gone it is behaving more like any Tech Stock (wink wink). Whenever there is a turn around in the broader market (a new bull market), Technology will lead. Stuff like VMW will go places at that time. Till then: sayonara!

YHOO, VMW compared to $NDX and $SPX since 8-2007


Digging a step further and charting the relative performance since the significant marker bottom of Mar 2009, we see that VMW has really out shined YHOO, NDX and SPX.

Please note that this is an academic exercise and the comparison of VMW to YHOO is coincidental randomness (if there is such a thing :) ).

YHOO, VMW compared to $NDX and $SPX since 3-2009

EUR/GBP currency pair

EUR/GBP is still at the same place. One might take a bearish stance thinking that the descending triangle on daily chart may take hold and the pair may plunge downwards with the break of support. It will chime well with GBP/USD gain today and EUR/USD decline today (which is declining quickly towards its target).

But wait, the (my) Elliott Wave count is saying exactly the opposite.

So what is next? We shall see. Personally, I am bullish for the pair. My target in the next 2-3 months is at least .9500 so taking profit at .9450 may be prudent for me, provided it goes up.

And remember, there is nothing more bullish than a failed bearish pattern :)

Forex pairs

1.4038 completes the (V) of 3 of wave C, making way for the wave 4 correction which can take the pair till 1.3735. Wave 2 of C was a Zigzag and took about a month to complete. That bodes for a sideways churn not to dip below 1.3735 and the churn lasting for at least couple of weeks. This is where the dilemma lies. See the chart below for GBP/USD and EUR/GBP for more pondering.

EUR/USD 60 min


GBP/USD finished wave (3) at 1.5873 and a fla correction brought it to 1.5775 and now the wave (5) has begun. Wave (1) travelled 696 pips; the initial target of wave 5 is equal to 696 that is 1.6471 but truncation can also happen. We will wait to set that target. But a near term target of above 1.6080 is here.

So what do we see if take the chart of EUR/USD in perspective? GBP will be relatively stronger than EUR against the USD. That is where conflict arises. See the chart of EUR/GBP below the chart of GBP/USD for looking at the conflict.

GBP/USD 60 min



The chart of EUR/GBP is telling the story of wave 4 in the 5 wave impulse upwards. I could even count the a-b-c-d-e of the barrier triangle and conclude that we are at the end of wave 4 and should see a wave 5 higher. that means EUR will be stronger than GBP.
This is the conflict with count of EUR/USD and GBP/USD chart.
I am forced to ponder if the count is wrong somewhere. The form of EUR/GBP seems more clearer.

EUR/GBP daily

EUR/USD and GBP/USD currency pairs

52 week low on US Dollar index is at about 76.25, while it bottomed at about 78.80 in Dec 2008. It is not at 80.18. 76.25 is an especially important support level. It may coincide with our EUR/USD target of 1.44!
In the meantime, it looks like we hit iii of (v) of 3 of C at 1.3951.

The targets for v of (v) of 3 of C are 1.4077 and 1.4111. Thereafter we should see wave 4 of C (a correction in EUR/USD).

The target of v are derived from i and iii of same degree. Going short at about 1.4070 and stop loss above 1.4160 may be one of the techniques.

EUR/USD 30 minutes


I have revised the count for GBP/USD currency pair. Some labels are shown here. Looks like we are in (4) and it is expanded flat correction with wave c going to about 1.5735. Although previous wave 4 is in the area of 1.5777, the impulse has been very strong and Flat correction does not reach there unless it is a complex correction and a combination of corrective waves takes us down there.

GBP/USD 30 min

Crude Oil and Natural Gas

The decline of USD is one factor in rise of commodities epecially those priced in USD. But UNG is showing divergence. See the chart of Crude Oil, USO daily, UNG daily and UNG hourly. Crude oil is showing more strength than Natural gas. UNG did break out of the downward channel and as expected is trying to test the support at the upper end of the channel. The daily candle on UNG is a doji; market is trying to figure out its stance. This doji comes with a gap down. Morning Star pattern could be in the making; we will know when the market opens! If Morning Star is seen here, the stance will be near term bullish even though the dollar decline may pause soon.
Otherwise, this divergence in UNG means to take profits in USO!


UNG hourly



Notice the doji on daily candle.

UNG daily



USO has broken resistance of the ascending triangle and may test that support now.
USO daily



Crude broke out of the resistance level. A test of support will be the logical thing but markets have their own logic !

Crude Continuous Future

EUR/USD Forex Currency Pair

So far our Elliott Wave count looks OK for EUR/USD currency pair but some things are out of sync. The end of v on 5-12-09 marks the end of wave v of (iii) of 3 of C wave. Recall that the C is the part of a Flat correction. The recent v has been corrected with Zigzag abc with c finishing at 1.3428 that happens to be previous support and also .0028 away from the Head & Shoulder target of 1.34.
This was enough for me to go long today with stop at 1.3379. The idea is that wave 4 is finished today and a new 5th wave upwards should be on its way.
The items that are potentially out of sync are that within (iii) of C wave, wave 1(515) is so far larger than wave 3 (470). Now the 5th wave better be smaller than 470 for this count to be correct.
Also, 1 of C is 1,195 pips long. So far 3 of C has travelled 835 pips. With its last impulse with limited upwards allowance of 470 from 1.3428, the 3 of C will finish at 1.39 thereby advancing 1,020 which will be less than 1,195.
It appears that the counts needs to be re-evaluated. One area to look will be 5-4 and 5-7-09.
Besides, the advance of current wave v needs to be followed for validation.


EUR/ USD hourly

The cubes

The longer term picture may not be suitable for immediate short term trades but it does give historical background. Looking at the QQQQ's 10 year monthly chart shows the same Bearish/Bullish Zone for the Oscillator. This time Slow Stockastics is used. This idea was explained by Connie Brown in her book, "Technical Analysis for Trading Professionals".
One can see that the Oscillator stayed primarily in the oversold zone during the last bear market and stayed upwards during the subsequent Bull cycle. It is again hugging the lower boundry of the range.



QQQQ Monthly



The same picture is seen in SPY.

SPY Monthly



While looking at the daily chart of the cubes, we see that it did manage to jump across one level of resistance ($31.60) but bounced again the next level ($35.25) which goes back to 7-18-06.
31.60 level should provide support now. If the upward trend resumes, 35.25 level needs to be broken with high volume (> 200 M), the gap needs to close with a close above $36.07. That will be a sign of strength.

QQQQ Daily

Oscillator zone

RSI (Wilder) is well known and well followed technical indicator. It is an Oscillator that signals strength or overbought / oversold conditions. Below is a chart of $SPX going back to 2006. Notice how the RSI (Wilder), 14 days is toward the upper end of the zone, left shaded area. It went up and down but the overall picture was that it stayed in the upper zone. Compare that to the right shaded area. The glaring difference is of the Bear Market's influence on this indicator. See how it now shifts lower. More action is at lower zone.

$SPX daily with RSI



The chart below is the same chart but emphasizing the last two years. Ever since the significant bottom of March 09, 2009, RSI is trending higher. The key reading will come during and after the next decline. Will the RSI oscillate again to the lower Zone? Or will it make a higher low and start oscillating in the higher zone? The later condition will signify the shift away from Bear Market. This zone shift may not be a trade able signal by itself because of its lag but it does gives us the visual picture of the effect of the overall market on the oscillator zone.

In short, be cognizant of the overall market posture when looking at the oscillator's move.


$SPX daily with RSI

GBP/USD Currency Pair

Lets look at the GBP/USD currency pair. The price has been declining since reaching the peak of 2.10 in Nov 2007. The price came down to 1.3792 in Jan 2009 and thereafter the corrective action has began.

GBP/USD Daily

My primary count on the hourly chart is shown below.

After completing a Flat in the first week of March 2009, the next pattern is another Flat (double Flat). On 4-22-09, the next impulse move has begun and we are now in v of wave 1 up.

GBP/USD Primary Count

The alternate count in my opinion is shown below. It is a Flat, Zigzag and Zigzag correction. We are now in v of c of the last Zigzag.

GBP/USD Alternate Count

EUR/USD currency pair

So far EUR/USD currency pair is moving as per our Primary Count. The 5 wave sequence on the hourly chart began on 4-22-09 and culminated on 5-4-09 at 1.3416. The correction that followed brought it down to 1.325 on 5-7-09 and the we are in the next 5 wave move up.Looks like the wave 3 of this move is complete as it has met the target of 1.618% of the wave 1 of this move. Note that wave 1 of this degree began on 5-7-09 from 1.3250 and went up to 1.3439.
If wave 3 is complete, we should see a correction develop. Wave 2 was a Zigzag and corrected 50% of wave 1. We should see a flat or triangle in wave 4 with possible retracement to 1.3570 (23%) or 1.3530 (38%).

EUR/USD hourly

Another pattern that emerges on daily EUR/USD is a cup and handle formation. The handle is rather large. Will the cup hold up the beverage? We shall see! Recall the target of 1.4383 on my 4-30-09 post!

EUR/USD daily

Oil and Nat. Gas ETF

USO, the US oil fund ETF shows signs of basing since February. High volume in January and February can be a sign of Accumulation. Watch out the for the break above $33.

USO daily

UNG, the US Natural Gas ETF is in a clear down trend since last July. I have marked the bounces off the down channel. The present bounce is still within the channel. But something has changed. Note the increase in volume since end March. It may be a sign of Accumulation. So watch out for an upward break of channel. Strong volume will indicate decisiveness of the bulls. It may try to make a base initially; either way it looks like the downward trade is ending and bullish to sideways strategies will come in handy.

UNG daily

Top Crude lesson

It is somewhat hard to imagine that less than a year ago Crude Oil was $145 a barrel. At that time the "Analyst" were giving targets of $200 Crude. Fortunes were made and lost on this parabolic run culminating into $35 crude.
To bring home a lesson with 20/20 hindsight, lets look at the Crude Continuous Future contract. Changes in OI (Open Interest) reflects the rolling of the monthly contract. Point to note here is the trend of OI and Volume at any given time period. Notice how at the end of May 2008, OI was declining and Volume was rising. Previously OI was peaking at about 390K; by end June 2008, OI peaked at 315K, making a lower high. This is a sign of topping formation and distribution.
Crude subsequently peaked in July 2008. A lot of people who believed the "Analyst" call for $200 Crude were left hanging into the top. Indeed the informed/savvy player left the last few dollars of the long side profits on the table. It was a smart move on their part.I know it is hindsight. But if one can watch for this pattern in the future and not get drowned in the market noise, this hindsight lesson can be of forecasting value!

One can see from the daily chart that Crude has been basing since the start of 2009. More recently it has been in a channel between $54 and $48. The OI did go up to 390K in January 2009 but has been trailing since then. Lets see if the OI can again go back to 390K with high volume. That will be one of the indication of a bull trend. If that happens, the channel will be broken and price will trade North of $55. Catching and successfully following a trend can be very profitable but the clear lack of trend can present swing trading opportunities.

CL 1600 daily

Utility Sector idea

Since the significant bottom of 3-9-09, Utility is the relatively under performing S&P 500 sector. This should not be surprising given the traditional business cycle timing. Add the fact that 10 Year Note Yield has been rising.

See the chart of 10 Year Note Yield. Note how the support zone below and resistance zone above has made an in-between zone where the yield can bounce between 3.05% to 3.4%.


US 10 Year Note Yield






Utilities are interest rate sensitive as they are big borrowers.

My thought for a trade is to go long one of the recent better performers in Utility sector and try to hedge the risk by going short one of the recent weaker performers in the sector.

As of end April 09, 14% of XLU (SelecSpdr Utility ETF) is comprised of FPL & SO. For the very short time horizon of 2-4 weeks, my thought is that FPL will continue to gain while SO will continue to lose. Obviously, the bigger market picture can change that view, especially the results of Bank Stress test and Unemployment numbers which are due out this week. That is why I am more inclined to hedge this trade while keeping stop loss targets in place.

The daily chart of FPL shows the breakout from an inverse head and shoulder pattern (shaded rectangle). The rising resistance line (green) is meeting with overhead support at $62. That is the target. Rising red line is the support and stop loss to be placed below it.


FPL daily

The daily chart of SO is declining against a dropping resistance line (red line) and has support at $26.50 which is the target. The stop loss is above the red line.

SO Daily

In both cases, the stops should be adjusted as the position(s) go into profit as they are against sloping trend lines.

I am considering buying Synthetic Combo (long call ATM and short put ATM) in FPL and Selling Synthetic Combo (short call ATM and long Put ATM). Stops are to be placed along with the trade as the position can move quickly.

S&P 500 Sector strength

S&P 500 index finished the year 2008 at 903 and closed on 03-09-09 at 676. Currently, it is up 30% from that significant bottom. One way to gauge relative strength of different sectors within S&P 500 is to compare the different Select Spyder ETFs ($TRAN is used here for Transportation Sector). We are using the comparison from Mar 09, since that is was a significant bottom.

Clearly the Financial Sector (XLF) is the best relative performer with 70% gain since 03-09-09. $TRAN, XLY, XLI and XLB significantly outperformed S&P 500. XLK was marginally better while XLE, XLU and XLP underperformed the broader market.

First lets look at the best performer, XLF. Between the market peak of July 2007 and significant bottom on Mar 2009, XLF was down 82% while S&P 500 was down 56%. Between the previous market bottom on 11-20-08 and the recent one in Mar 2009, XLF was down 33%, while S&P 500 was down 10%.

So, going into the low of Mar 09, XLF was under performing the S&P 500 while the S&P 500 was itself declining. XLF was the worst relatively performing sector due to the worldwide implosion of Credit Markets.

Mar 09, 2009 becomes a significant pivot from where the XLF took off. Although the advance of XLF has been pretty volatile (notice the jagged curve of advancing XLF), it has managed to advance significantly more relative to S&P 500.

Recall the old Wall St. Disclaimer about past performance not being the guarantee of future results. Past weakness shall not construe future weakness either. This is the case in point. So much so for picking out past year winners both in equities and Funds in the hope that they will repeat their performance.

XLP is the weakest sector relatively. This is considered a "defensive" play. Weakness in defensive sector means that market's risk appetite has grown.

The marginal relative performance of XLK (technology) is another thing to ponder as Technology is a leading sector during early Business Cycle Recovery. But a double bottom of XLK at 13.10 is a harbinger of good things to come.

Since the other sectors are mostly in line, if Financials can hold their strength and Technology improves its position, it is a sign of early cycle recovery.

Sell in May and go away?

The marketplace is abuzz with the ideas like “the worst is over”, “markets will be fine by the end of the year”, “and it (from March lows) is a bear market rally”, “sell in May and go away”, “Wait; not this May: it is different this time” and the sound bites go on and on.

SPX daily


First let’s look at the daily chart of SPX (S&P 500) going back 10 years so that we can see the action in 2002 and 2003. The first oval in 2002 and 2003 is where SPX made a base and changed direction. The second oval is current price action.
We can see that in each oval is representing an area of consolidation. The market is trying to base.

SPX daily with price removed and 50, 200 SMA


Now let’s look at the same chart with price removed and showing 50 period (Green) and 200 period (Red) SMA (Simple Moving Average).

The direction of 50 SMA crossing 200 SMA is the direction of trend, i.e. up or down. The distance between the two averages is the momentum of the trend.

The first oval: Notice that during the steep decline of 2002, the 50 SMA is running away from the 200 SMA but during Nov 2002 the averages started coming nearer. Still, the trend had not reversed; the market was trying to find its bottom, 200 SMA was still declining. Finally in Apr 2003, 50 SMA again started moving up. This time 200 SMA slowed its decline and changed its slope upwards (May, June 2002).

The second oval: Currently, the distance between 50 and 200 sma is pretty wide. For the market to base and change the trend this distance needs to shrink. Thereafter 50 need to cross the 200 from below to signal the change in trend.

The crossover of 50 SMA and 200 SMA comes with a lag. In the daily chart it is a late signal that will come after market would already have bounced some distance from the bottom. But when you see it, you can be more certain that the trend has changed.

If one’s time horizon is not small (meaning one is not a day trader or a swing trader), one can indeed “sell in May and go away”. The market has more water to tread. Obviously, for time sensitive vehicles like nearer term options this signal by itself may not be appropriate.