Jul

30

Investing Systems Research Lab Blog for Week of August 1st, 2011

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As I’m writing this post the “Breaking News” headline on “Faux News” is “Mixed Messages Over Where Washington Stands on the Debt Deal”. “Negotiations are Underway”.

Last week was the “worst week in the market in a year” they tell us, which is no huge surprise given the fact that they didn’t reach an agreement all week. Honestly the overall market held up relatively well compared to many stocks. I looked through a couple thousand charts last night and “it’s ugly out there”.

I did a lot of work revamping our main watchlists and removing those with “broken” charts.

It’s impossible to really get a sense of market direction until the Debt Ceiling is raised, which I still think will happen. The market is oversold on a short-term basis so we might get a decent “reaction” rally once the news breaks, but unfortunately, the underlying structural problems are still there.

I wanted to look at the Weekly and Monthly charts of the S&P as we are very close to the upward sloping trendline that goes all the way back to the 2009 lows at 666. I think it’s very important that the market holds above this trendline.

Here’s the Weekly chart.

Here’s the Monthly chart.

One year ago, in August 2010, the S&P opened at 1107 and sits about 17% higher now. A 38.2% Fib retracement from 666 low to recent high would put us right back there as indicated by the red line. I’m not saying this is going to happen, but if it breaks the trendline and starts heading down, this would be a reasonable technical target.

Of course if things start to get ugly, we can’t rule out the notion that “Ben Bernanke might come riding to the rescue like a knight in shining armor on a white horse with QE3”.

Which brings me to the next topic I wanted to discuss. Another “review” of sorts.

I’m not sure how long you have been reading this blog, but almost exactly one year ago I posted some thoughts and some charts on Gold and Silver.

Here’s what I said in August 2010:

Gold is in a long-term uptrend as you see on the weekly chart below and is bouncing off the lower end of the channel. GLD is also near a critical juncture with a bit of overhead resistance, but only a stones-throw from a new all time high in nominal dollars. We think it will continue up the channel and move into the green box this fall. If, however it breaks the lower end of the channel and the 30-week moving average, then it’s possible to envision a pullback all the way to 1000. I think this is unlikely since gold is the “true money” in a world of “fiat currency”.

Here was the chart I posted at the time.

Here is the current chart with a green arrow indicating where the above was posted.

I also had some similar thoughts on silver. Here is what I said a year ago.

Silver is likely the best “investment” anywhere for long term buy and holders. If I had to recommend just one investment to someone that was going to buy and hold for the next 10-years, it would be physical silver.

We use SLV as a proxy, but it’s not the same “investment” as physical.

You can see we are reaching the apex of this long triangle on the weekly chart and keeping a close eye for the breakout to the upside.

Here was the chart of SLV at the time.

Here’s a current chart of SLV with a green arrow showing where the above was posted.

Now those of you that have been around for longer than a year know that our theme has been constant. Gold and Silver are true investments. Everything else is “just a trade”.

I have no idea where they go from here in the short run, especially with GLD up at the top of the channel, but I remain steadfast on my statement that they “are the only true money”.

“Gold acts as a barometer whose price announces how a government is handling their country’s fiscal and monetary affairs”.

I copied that quote a long time ago, but I don’t remember who said it. Seems appropriate right now with the price of gold at an all-time high in nominal US dollars.

Moving on… as I mentioned above, I looked through a ton of charts and really don’t like what I see. There’s a lot of “technical damage” and it was hard to find many good trade setups going into next week. It seems to me if the market rallies on news, it should take most stock up with it, even the ones with ugly charts. If the market decides to keep falling, you don’t want to put on new long positions just yet. Sure there are likely to be some oversold bounces, but most stocks are going to need time to “carve out” a bottom.

Here are some setups that have potential if the market cooperates.

Reviewing some of my past setups it becomes clear that the thing to do is “take profits quickly while they are there”. I see a lot that trigger, make quick 5% to 10% up moves, then fall back. It’s just the environment we are in.

I hate to sound like a broken record but I am still cautious and have been since early May, which you can see by perusing some of the previous blog posts.

Regardless of how the macro picture plays out, there will still be plenty of trading opportunities on a day to day basis. It’s just a really tough time to be an “investor”.

On a positive note, our “long-term market timing signal” did NOT move to a sell at the end of July. It came close but did not get hit.

So here’s hoping for a resolution to the Debt Ceiling crisis in the next few days and an avoidance of “Sovereign debt default” by our Uncle Sam. As you know, it’s “us taxpayers” that pay the ultimate price for incompetence in Washington.

Be sure to join us Monday morning at the market open and we will watch these events unfold together.

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Jul

23

Investing Systems Research Lab Blog for Week of July 25th, 2011

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As of right now, the “Debt Ceiling” issue has not been resolved. I could probably rant on and on about how ridiculous this is, but there are a thousand other places you can read and hear opinions on that, so I won’t bother. As a citizen, I’m disgusted with politics in general. Human affairs are supposed to “evolve” not “devolve”. We live in modern times and you would think that society and governments would be better by now, having all of history to use as a guide on “not what to do”. Yea right.

But all that really concerns me as a trader, is how it will affect the market and what can we do to mitigate the risk associated with the madness.

As everyone that listens to our Research Lab broadcast knows, I never like to go into any weekend with a lot of “exposure”, and I feel good about that at this moment.

I think this coming week is going to be exciting and tumultuous, depending on several things that are about to transpire.

Do they, or do they not reach an agreement to “raise the debt ceiling”. How will the market react?

Will the ratings agencies downgrade our debt anyway? Will my parents get their Social Security checks next month?

People might have opinions, but as of right now no one really knows. The President said if the debt ceiling doesn’t get raised it would create “Financial Armageddon” and he’s not the only one using this sort of language. So please excuse me for being a little cautious.

Perhaps he’s just joking around, trying to scare people. Regardless, as I’ve stated on this blog in the past, every day I wake up and the entire Global financial system hasn’t collapsed is a good day.

As we discussed on the mid-week show, the US Dollar was weak and essentially broke down from it’s triangle pattern and as strange as it seems, that’s likely why the market went up. The dollar movement in the current environment seems to be the number one “day to day” reason for the market to do what it does. Dollar down – market up, dollar up – market down. Of course this is a “transitory” relationship and it doesn’t always work that way, but right now there’s a high correlation.

Of course the dollar weakness is why we have $1600 gold, $40 silver and $100 oil at the moment. We can use those prices as benchmarks in the future.

With all the uncertainty, rather than mark up a bunch of new charts of stocks that look good from a technical perspective, I thought I would review the charts from last weeks post that actually filled. Kind of a review.

I went back to last weeks post, pulled up each chart and zoomed way in to see if the “markup entry” actually got hit at any point during the week. Here are the ones that “filled”.

You can clearly see the benefit of reading this blog each week and using the charts I mark up as a watchlist. Of course with strong market conditions in any given week, the trades are going to work out a lot better, but typically, as I mentioned last week, when the market is weak the trades tend to “not fill”. That’s the beauty of buying into strength on good technical patterns.

A few of these stocks still look pretty good. I will be watching the oil and gas, and energy stocks closely this week. This is a strong sector and a lot of the stocks have great patterns right now.

I have a couple in mind for Trade Plans if the market doesn’t collapse this week.

Just joking. Of course things will be just fine and we will carry on normally about our daily lives, trading stocks and watching the market.

Of course the politicians in Washington are not going to default on the US Debt. They couldn’t possibly be that stupid. Right?

We shall see. A disruption in continuity is really not in anyone’s best interest.

Join us Monday morning at the market open for all the excitement. We will share our thoughts and insightful comments on the market, stocks and anything else that interests you.

Cheers!

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