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The PPT

And Just Like That, February's Gone...

Written by Zachary A. Musso On 2/28/2009 12:46:00 PM 3 comments
... The aftermath of this month, however, will be felt around the world for a very long while (on a yearly outlook, nonetheless).  Among the things that went well in February were:
  • My 6% total month-to-date gain.
  • The recent development and further testing of the RSI-FS%K indicator-based guidance system.
  • The beginning of my, "Bulls vs. Bears" ETF-iETF Comparative Analyses.
  • The growth and development of MJTT through new visitors.
  • New Twitter-ers!  Shout out to everyone who friend requested me in February, for I am much obliged by the amount of followers I have gained.
And that was about it.  March is a month of busy times for me, for my athletic season is starting and I am probably not going to have the time to post every night as I have been since December of last year.  Every post, however, will no doubt be worth reading and as extensive, if not more extensive, than previous posts.  I wish good luck to all of my trading homies in March; may it be a prosperous month for everyone!!

For now, let's get down to business.  I am absolutely disgusted with the way our current administration is running our country.  In order for this country to do as well as it has in the past, it must have a capitalist, free-market mind set and the will to recover with great vigor and strength.  We have the vigor and will, but we're lacking the capitalistic free "marketeering."  With Obama to inject billions upon billions of dollars into our system for ridiculous purposes, the state of the U.S. is under heavy consideration by many a conservative-minded economist.  I have an enormous hatred for these socialistic government programs Obama is going to institute, for the programs themselves did not prove to work during the Great Depression and drove us lower into the ground during that time period.  We have no World War to bring us out of this negative economic spiral, and without an extravagant catalyst that forces us to pick our country up by the bootstraps, we are in for a long 2009.  The "Half-Way Recovery" in 2009 is looking like less and less of an option for investors to buy into this market now and get good deals.  If, however, you're planning on investing for the long haul (10 years +), now may be a good time, remembering, however, not to invest money you can't afford to lose.  The saying of "History Repeats Itself" has become a well understood statement since September of 2009.

I have yet another plan to prevent us from getting demolished in the future like we have been since September.  Take the pork barrel spending money from this past Stimulus Bill and you'll come out with a large sum of money that is going to wasteful, frivolous trash.  Obama wants to change education, correct?  Math and Science are important, that's an obvious fact, but what's more important than advanced calculus and organic chemistry are business courses.  High schools in the state of Pennsylvania mandate a senior project be finished as a graduation requirement (volunteering and then writing a five paragraph essay on your volunteering experience).  Although this is a great way to give back to the community in which you reside, I came up with the plan of nationally mandating EVERY child in the United States to pass a Personal Financial Literacy course as a graduation requirement instead.  This not only helps children in high school gain some kind of business education, but it will also allow them to gain the knowledge of being financially literate to some degree in their personal lives later on down the road.  Any thoughts?

The technical aspect of the market last week was gross, and for February as a whole, it was the worst one since 1933.  For now, let's check out a couple of notable charts from the week with some technical descriptions below each chart:

$SPX  5 Day, 10 Minute

As most of us already knew, the $SPX made some new records this week, beginning with a new low set on Tuesday and finishing with a newer low on Friday.  The danger of the $SPX going lower is becoming a large reality, and as seen from the $SPX weekly chart, each week is like riding a roller coaster that keeps getting longer and with more pivot points and sharp turns.  Technical patterns are coming out of the wood works, with double bottoms from Wednesday ending in double tops on Thursday.  Watch out for you index pattern breakouts/breakdowns and compare them with whatever sector is driving/tanking the market on that specific day!

$SPX  20 Day, 60 Minute

The $SPX Fibo Fan is currently stopped at the index's bottom of 735.09.  Although the futures are showing the $SPX in the red early by 10-12 points, we have the potential to push higher tomorrow out of panic buying fear.  We have no technical indicators left to base a bottom off of, for Friday's close is the new bottom for the $SPX.  The B.A.D. pattern is proving itself pretty well, and it could last for up to 10 more days without a pop.  This could put us to the supposed $SPX 600 level that CMT's have been calling for since the beginning of 2009, and with all the ridiculous money handouts that keep reoccurring on Capital Hill, $SPX 600 isn't out of the question.

AAPL  10 Day, 15 Minute

*** Only stock I have found to like if the market bounces ***

GS  10 Day, 15 Minute

*** Watch GS as an indicator for how the rest of the Financial sector is doing.  I would short it! ***

FAS  10 Day, 15 Minute

FAZ  10 Day, 15 Minute

Keep your eyes on both FAS and FAZ, for they're a dangerous couple to trade with.  If you trade them correctly, they can make you, but if you don't, they will break you into tiny little pieces.  FAZ hasn't broken down from its current ascending triangle pattern, FAS hasn't broken out from its current descending triangle pattern, and because the financial sector is so weak, you might as well keep to this technical pattern until something shows you different.  In my opinion, I wouldn't doubt that you see something similar to Friday's trading session tomorrow in that FAZ has an enormous open-to-close gap from Friday to Monday, continuing to lose some points into the middle of the day and breaking out into the close.  Also watch the volume channels outlined in both charts above concerning FAS and FAZ in order to keep up with the price-volume convergence and divergence, as well as volume breakouts.

SRS  10 Day, 15 Minute

To keep it simple, SRS ended on a Spinning Top candle, giving it full reign to do whatever it pleases.  Based off of futures, SRS has a high probability of breaking above Friday's resistance.  Based off of SRS' past patterns, you may see something similar to what occurred on Friday and what may happen to FAZ.

General Notes for Tomorrow:
  • After trading it up in the last two hours on Friday, getting out of SLB for a +1.62 price gain as well as trading FAZ for a +1.80 price gain, I AM 100% CASH GOING INTO TOMORROW.
  • I am looking for the market to open down, and from there I'm going to run an intra-day sector search as to where the market weakness lies so I can short the weakness into the ground through leveraged iETFs.
  • AIG pisses me off and will probably be what CNBC talks about for the entire day until something better comes out.
  • Keep to your technical price patterns as well as your price-volume comparative patterns in order to diagnose entry/exit and breakouts/breakdowns within your watch list of stocks, ETFs, and iETFs.
Good Luck tomorrow, and Good Night from MJTT!


ZM

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The Market is Indecisive...

Written by Zachary A. Musso On 2/26/2009 08:42:00 PM 2 comments
... Even if $SPX candles say otherwise:

$SPX  3 Month, Daily

I did two different types of technical analysis tonight on the $SPX and how it's been trending.  Not unexpectedly, we saw signs of weakness in the $SPX as FAZ and SRS controlled the market from about 11 am until close.  Interestingly enough, the $TRIN was up above yesterday's close of 1.01 to 1.11.  I found this particularly interesting because it increased from the open on, with the only decrease coming from today's morning correction of yesterday's disastrous close.  See for yourself:

$TRIN  20 Day, 20 Minute

With the $TRIN breaking ahead of the overall decreasing trendline set back in the beginning of the month, FAZ and SRS created some monumental gains out of no volume at all.  This makes me bittersweet, because since the beginning of the year we have been experiencing BULLISH runs on lower-than-normal volume.  To see a BEARISH run on lower-than-normal volume may indicate that we could go higher, but it could also indicate that people don't have the big ones to play the leveraged inverses.  I am bittersweet because if we do happen to go on a bear market rally in the nearer future, I can't trade my inverses.  This makes me sad, but seeing the market doing well makes me quite a happy camper (or trader, in this context).

Due to the action in FAZ and SRS, I have put together charts of these two inverse ETFs, as well as a chart for FAS just for good measure:

FAS  10 Day, 15 Minute

FAZ  10 Day, 15 Minute

SRS  10 Day, 15 Minute

The breakout on FAZ and SRS are ridiculous (in a good way, of course).  The one thing I've noticed for FAZ is its true lack to develop any type of a volume pattern for the trading session, which gives me only a broad idea as to where it may go compared to the overall market trend (for extra guidance, the RSI-FS%K recommended an overnight hold after buying @ $48.84).  SRS, on the other hand, showed a significant pivot point in the intra-day volume at 12 pm, trading out of a price-volume divergence and into a price-volume increase that continued into the close.  SRS may be a tad overbought as of now, but with today's close, it has the potential to hit $82 (its next resistance level).  In my opinion, I am expecting a slight pullback in the iETFs with a high open based off of the Futures I'm currently watching.  We're looking more and more like the bull market could take over, but there's no way I'm jumping the gun after checking these $SPX charts:

$SPX  20 Day, 60 Minute

A new, "Breakout-And-Die" pattern (or the B.A.D. Pattern, if you will) has been formed @ $SPX 778.07.  What this pattern consists of is an $SPX breakout for a minimum of two (2) days and a maximum of four (4) days, and then falling through the floor (or the current support level).  Because of this pattern, there is too much pointing to a market collapse next week, especially if we have a green day tomorrow after the Preliminary GDP report.  I can already tell you that holding over the weekend is not only ludicrous, but it is also completely risky.  With that said, if you end up picking the right side by holding over the weekend (and not getting a single hour of sleep due to stress), the rewards you will reap will probably be astounding.

While looking at the current $SPX pattern, I had this awkward idea of using a Fibo Fan (which I used to use a lot more often than I do now) in order to find a possible trading range for the index.  I received this chart as a result:

$SPX  20 Day, 60 Minute (Fibo Fan)

Out of my curiosity came this interesting and unexplainable work of art.  With all the fear involved in the market, you can still put up a Fibo Fan and get a damn decent trading range estimation!  The Fibo Fan caught two of the key, bullish reversal points seen over the past week, as well as showing us two possible ranges for market collapse and market rally (the light green and pink boxes on the last lines of the fan).  As interesting as this may look, we have to wait and see whether or not it's reliable.  Next week is therefore the test for the Fibo Fan trading ranges.

In other news, if the market goes bullish, I'm looking towards AAPL:

AAPL  10 Day, 15 Minute

For now, I'm yet again undecided on a trading side (bullish or bearish).  I'm still holding SLB (bumped its stop to $36.50) and other than that I have my cash ready to make a move.  For now, I'm happy with my strategy, and I hope all of you are as well.  Good luck tomorrow, watch the volume CLOSELY, and don't forget FAZ and SRS!!  Good night from MJTT!

UPDATE:  
  • Jindal Gets Insulted - Absolutely hilarious.
  • Watch GS and its resistance of $93.00.
  • FSLR might be a steal here for the long haul, but watch its price closely: the $90 - $100 range is much more realistic.
  • Either DIG/DUG or TNA/TZA will be up next for the 3rd "Bulls vs. Bears" i/ETF Comparative Analysis article.

ZM

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Is It For Real?

Written by Zachary A. Musso On 2/25/2009 09:15:00 PM 0 comments
As Sheila Bair gets grilled on CNBC with "Word Association" and audience inquiries, I have been questioning what's making the market pop and not drop.  I'm beginning to feel that there is some sort of optimism within the markets, but all in all, I'm not sure many investors and how many traders (professional and individual alike) feel completely confident with the Stimulus Plan.  Many don't understand why $787 billion needs to be put down in order to save our economy, and I am one of them.  I am not only appalled by the price, but I am also questioning why the price needs to be so high.  Until I understand this, I'm keeping my investment portfolio's cash on the sideline and my trader portfolio's cash moving in and out of positions like it's on fire.

For now, however, I'm going to share a couple of charts with you that could guide you in your journey to gain some mullah.  So, without further ado, the charts:

$UVOL  1 Day, 5 Minute

$DVOL  1 Day, 5 Minute

$TRIN  30 Day, 60 Minute

In my experience with iETFs, when I look for large inverse swings and big down days on the indices, I look towards the $TRIN for some guidance.  The $TRIN itself is the NYSE Short-Term Trade Index, and as we can see from the chart (if you haven't noticed already), there have been some major days where the iETFs ruled the markets, February 10th being one of those days.  In the past 30 trading sessions, the $TRIN has been decreasing, which could mean two different things:  1) More and more people are moving into cash and not trading at all, or 2) More and more people are going long because many speculate that we've hit bottom.

$SPX  3 Month

As seen on the chart above, the "Spinning Top" candle is a dangerous candle because it indicates that the ticker at hand, in this case the $SPX, is indecisive and has no direction just yet.  If you go to an $SPX 10-day chart, we're probably going to end up trading in a channel for the rest of the week because there's no catalyst to drive the market (minus Friday's Preliminary GDP Report).  I don't see us going any higher than 800, and I don't see us going any lower than 743, the new $SPX bottom.  With that said, however, I am hesitant in both directions and will not go "all-in" on a specific side until I know what that side is.

FAS  10 Day, 15 Minute

Key Points on the FAS chart:
  • Watch out for heavy volume and the pattern of the volume compared to its price.
  • Watch the $5.33 - $6.36 range for tomorrow (going along with my $SPX thoughts seen above).
  • FAS is currently trending positively, and because of this, the bulls have the upper hand going into tomorrow (even with the sell-off towards the close).
  • On the contrary to the third bullet point, the market is trading on an overall lower-than-normal volume, which doesn't help the realistic trend over the positive push higher in FAS we're currently witnessing.

FAZ  10 Day, 15 Minute

*** Watch FAZ to make a move tomorrow if the bulls don't snag the upper hand off the open and HOLD THAT STRENGTH into the second hour of trading ***

SRS  10 Day, 15 Minute

*** Watch SRS to make a move tomorrow if the bulls don't snag the upper hand off the open and HOLD THAT STRENGTH into the second hour of trading ***

ENER  10 Day, 15 Minute

*** Watch ENER to make a move tomorrow if the bulls snag the upper hand off the open and HOLD THAT STRENGTH into the second hour of trading (it has hit a very strong support level @ $23.66 ***

Some main points about the charts above:
  • Something big is brewing in the markets, and until the first signs of it occur, stick to day trading and quick in and out trades so you don't get beaten like a drum and caught on the wrong side of the trade your planning.
  • The Down Volume to Up Volume Ratio today was 1.65 to 1, hence the day was somewhat mixed and was riding on lower-than-normal volume.
  • The bulls have to take the upper hand early tomorrow, allowing the indices to gain an off-the-bat strength in order to have "security points" if the market falters mid-day.
  • IF the bears gain the upper hand off the open tomorrow, watch for action similar to today's with a larger volume base.
For now, I'm hitting the sack, for I am worn out.  Good luck tomorrow from MJTT!!


ZM

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Optimistic? Yes....

Written by Zachary A. Musso On 2/24/2009 09:37:00 PM 2 comments
... Informative?  Not so much.  I love the optimism, but in trying times, I'm not all about sitting by a campfire smiling and laughing while playing boardgames, cooking hot dogs, cuddling with your stuffed animals, and listening to the hippie strumming koom bay yah on his guitar.  As I have been reiterating since Barack has been elected, I must PLEAD to all of you that this man is not only clueless as to what he is doing with American tax dollars, but he is also clueless as to how to informatively explain what he plans to do with the $1.5 trillion budget deficit, the Health care mess, the Housing and Financial crisis, as well as the way he plans on addressing the lack of demand coming from the Oil and Gas industry.  I must allow you to digest his $15 billion cash deposit PER YEAR to inject clean coal, solar power, and wind power projects into our "Energy Crisis."  Again, just another way to develop more government run jobs.  I must defect for a second, as I profess that the government does not have the skills to develop these programs without private businesses.  The people who run these businesses will not expand their workforce just because of this Stimulus Plan (employers are cutting jobs for a reason, people).

As I sit and waste my hour listening to our President babble and drool over the Stimulus Plan, I have also been busy with my technical analysis for tomorrow.  I am 51% short, 15% long, 34% cash, and proud of it, for tomorrow we dive like the Titanic.  

Let's start with the short position charts:

SRS  10 Day, 15 Minute

FAZ  10 Day, 15 Minute

SRS is at its $70.09 support from the open yesterday, and the price-to-volume pattern shows a sell-off convergence.  My opinion is this thing hits the ground running and doesn't stop tomorrow until mid-day, or if lucky, for the entire trading session.  FAZ's situation is a little different, but with an already negative market outlook for tomorrow and a lack of direction in the financial markets after Obama's speech, there should be a financial sector sell-off tomorrow causing FAZ to move upward.  Another indicator for a probable spike is the lack of sell-off volume towards the close in FAZ today.  After a price sell-off of exorbitant losses like today, the financial sector as a whole will begin to show signs of weakness yet again, giving FAZ a definite edge and showing that today was just a bullish head fake, or a "short-term squeeze" if you will.

As for the $SPX chart:
$SPX  20 Day

Key Points for the $SPX:
  • Support = 743.09
  • Resistance = 776.39
  • Trading in a Negatively Trending Channel
  • Futures are currently -4.25 points.
In the past 10 Days, the average $SPX point move from open-to-open is 19 pts.  Correlation wise, the $SPX is under the perfection of 1 at .989, which is currently an 8 point average swing over a 10 day period.  Today's correlation was the highest open-over-open correlation we've seen in the past 10 days, topping the charts with 1.038.  Looking at the $SPX mathematically using a 10 day linear regression, Thursday's open could be as low as 740.50 (looking into the crystal ball a tad), and in the context of tomorrow, we could retest our recent lows of 743.09.  Mathematics doesn't factor in emotions, however, so it could be better or worse than anticipated.

My portfolio is as follows:
  • SRS @ $71.01 (25% Exposure)  No Stop Set Yet
  • FAZ @ $58.31 (26% Exposure)  No Stop Set Yet
  • SLB @ $36.95 (15% Exposure)  Stop @ $34.50
  • Caaaaaaash (35%)
As for now, it's time for some hard-earned sleep.  Goodnight from MJTT, and Good Luck tomorrow!!


ZM

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Things to Look at if the Market Explodes...

Written by Zachary A. Musso On 2/23/2009 08:33:00 PM 0 comments
... Not that I'm saying it will.  I am expecting some type of recovery pop this week, and if we don't get it, I'll be even more worried than I am already about the state of our economy.  The one thing I am sick and tired of hearing is Obama professing that he will sprinkle some type of miracle dust on the market after his first term in office and the market will magically spring board like a weed without weed killer.  With the current trend in stock markets all around the world, however, the weed has been replaced with a tree root, going lower and lower as the tree gets watered.  The water, for those of you who don't get understand this analogy, is the $1.5 trillion dollar deficit we have been racking up since this mess began back in September.  The question that has been on my mind ever since I watched the PBS Frontline Special is, "What would have happened if we let these major institutions go bankrupt?"  Food for thought...

In other news, AIG and C are utterly disgraceful and will be put on the nationalization chopping block in a matter of months, especially if the government intends to keeping pouring money into their oversized pockets.  Understand this: the reason why I am upset about this ridiculous government-funded financial bailout is not just because of the enormous taxes my children will be paying, but because the government should understand that it's not the institution as a whole that's at fault, but the people at the top calling the shots.  You want to make a difference in the financial sector, United States Congressional Leaders?  You should be spending your money on hiring strong, able-bodied men and women that get graced with the job of heaving CEO's like Ken Lewis, James Dimon, Vikrim Pandit etc. out of their penthouse apartments or top floor offices laced with $35,000 toilets.

Moving onto the technical perspective for the day, SRS opened lower than the expected $72.83 support level, bottoming out on the intra-day at $70.10, and then tore the rest of the day up in rampage-like fashion.  The candles on SRS towards the close look promising as well, as they're mainly bullish with appropriate volume to support it.  RSI closed out at 57.61, which is somewhat indecisive as to where the iETF will go from here.  As for now, SRS has the potential to go hit its next resistance level of $84.72.  Beware of this puppy for tomorrow:

SRS  10 Day, 15 Minute

As for now, I am 45% long and 55% cash.  I had a down day today, but I feel confident in my three overnighters going into tomorrow:
  • XLU @ $26.13 (15% Exposure) - Stop @ $24
  • SLB @ $36.95 (15% Exposure) - Stop @ $33.50
  • DRYS @ $4.08 (15% Exposure) - Stop @ $3.62
I chose these three tickers because of their technical status, as two of the three (SLB and DRYS) have hit significant support levels, while the other (XLU) is ridiculously oversold and is bound for a dead-cat bounce.  During times where markets pitfall, my belief is that you can pick any sector you please and still get away with gaining a decent percentage return.  The only thing that is different now than from last November when there was, "No bottom in sight," is that the government is officially out of bullets and is without the American public's support (for the most part).

Other tickers I'm looking at are as follows:
  • ENER @ $23.24 to $22.65
  • GS @ $79.94 to $78.27
  • AAPL to hold tomorrow off of its close from today ($86.95)
  • FCX to hold tomorrow off of its close from today ($26.34)
  • NUE to hold tomorrow off of its close from today ($35.55)
  • BTU to hold tomorrow off of its close from today ($22.00)
  • ROM to hold tomorrow off of its close from today ($17.63)
  • FSLR @ $111.10 to $107.91 (if no hold off of today's $124.84 close)
Again, these picks are only if the market were to explode for a corrective measure pop.  If not, the standard DIG/DUG, FAS/FAZ, URE/SRS, UYM/SMN day trades will always bring in a good 5% if traded properly.  As I look through my charts tonight, the one major thing I see in a lot of stocks that are in heavy sell-off mode is their price-to-volume convergence, as it is a trend being seen in almost all of the stocks in my watchlist above.  To me, this indicates a short-term squeeze, so in other words, heads up for a spike tomorrow off the open.  On the contrary, don't let the Opening Bell Panic Buy/Sell Syndrome fool you!

Enjoy the rest of your evening!


ZM

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URE vs. SRS - Bulls vs. Bears

Written by Zachary A. Musso On 2/20/2009 05:29:00 PM 1 comments

As I promised for this weekend, the second edition of my "Bulls vs. Bears" ETF/iETF comparative analysis is finally here.  Allow me to introduce to you the next batch of one of the most diabolical, maniacal, and last but not least volatile ETF/iETF pair: URE and SRS.  Coming straight out of ProShares family, these leveraged Real Estate tickers have been moving in frequent and volatile stages, and the charts below prove that over a 10-day time span.  Enjoy the explanations from a technical perspective as MJTT takes you inside URE and SRS:

First off, I have posted two blank charts (one of URE and one of SRS) below in order for you to familiarize (or re-familiarize) yourself with the ETF/iETF pair:

URE  10 Day-15 Minute (Blank)

SRS  10 Day-15 Minute (Blank)

Let's start with URE.  Off the bat, there are many visible price spikes within the chart, as well as multiple convergence and divergence set-ups in the volume that show some significant price movements throughout this particular 10-day time span.  SRS, although roughly 23 times the size price-wise of URE, is the same chart only upside down, or INVERTED (hence iETF, right?).  Both charts have trends that are visible, as well.  There are a couple of things you want to remember when trading SRS and URE:
  • Go with the tickers' predominant trend lines.
  • Follow the tickers' volume very closely.
  • Do NOT forget about the simple price action hints you'll receive through the tickers' candle formations.
With the core in place, let's outline URE and SRS with some good old technical analysis:

URE  10 Day-15 Minute (T.A.)

Beginning with URE, we can clearly see that the initial trend from Friday the 6th to Monday the 10th is positive, as the ETF moves to its 10 Day High of $4.61.  From here, however, the trend takes a nose dive and plummets all the way to about $3.65 before showing any signs of potential price strength.  Why did this nose dive happen?  We all know that the Real Estate market is dealing with some difficulties, but we must also focus on the technical aspect of why this plummet occurred and how we could have picked it up before it happened ahead of time.  

Going back to the 9th for a second, the uptrend in URE diminished after the price of the ETF broke away from the ascending triangle trend.  This was the first signs of URE's weakness.  The second sign of weakness within URE was its volume.  Take a look at the significant volume levels that are defined by the three baby-blue lines seen within the volume pane.  These three levels are significant because when these lines are broken, their is a significant price action to go along with it.  There was a sell volume breach of the first significant line, as well as evidence of the sell volume trumping the buy volume in the first hour of trading on the 10th.  If you had a position in URE at this time, these two technical indications should have left you with the interpretation of the ETF's price demise.  This plummet, therefore, could have easily been traded and profited off of.  

Moving onto the 11th, the price action and the volume amount set-up a clearly seen divergence, which caused URE to move higher.  With the lack of volume throughout the day, however, the ETF moved lower as the trading session continued.  This move lower set-up an intraday support level and led to another price increase into the close.  On the 12th, a similar pattern began to develop through the usage of an intraday support level until URE broke down to $3.40.  From this price, however, an enormous buy volume was established around 3:00 pm which should have given traders the heads up to a huge price swing.  URE pushed $0.50 higher into the close, and the volume amount reached a 10 Day High of close to 5 million trades.  At this point, someone trading URE should have taken profit and closed out of their position due to the heavy buy volume amount.  With huge positive swings like this in the last hour, the market is normally bound for a correction during the following trading session.  

On Friday the 13th, URE's volume lagged and made petty price movements that amounted to a somewhat non-tradable day.  The large significance of the 13th was the end of a trend that began to develop during the previous day.  A symmetrical triangle trend formation pointed to URE's necessity to become decisive and show hints of its potential direction for the coming week.  The trend ended abruptly in the last 15 minutes of the day as URE broke down below its support level that was set up at the beginning of the prior day's trading session.  This and the sell volume breach of the middle volume level was a large indicator that next week had the potential to be ugly technically.  

And, technically, that next week was quite ugly, as that Tuesday opened with URE being lower from Friday's close by about $0.35.  The 17th was flat, but showed a sell volume that was beginning to converge with the price action.  On the 18th, there was a major price/volume convergence which then reversed itself into a $0.25 positive trend.  A resistance level was set on the 18th that continued into the middle of the 19th before URE took another nose dive into uncharted territory to new lows of $2.61.  On the 20th, however, URE reversed yet again as considerable buy strength was seen throughout the trading session, particularly beginning at 2:15 pm and continuing into the close.  From here, URE broke free from its descending triangle trend and began its run from $2.77 to a close of $3.10.  Overall, the trend on Friday showed an enormous bullish movement in URE, but for how long this trend can last is unknown due to the heavy volatility within the Real Estate market.

SRS  10 Day-15 Minute (T.A.)

Moving on to SRS, an obvious pennant trend was formed and developed all the way from the 6th to the 13th.  This seven-day pattern showed a considerable amount of price increase from its 10 Day low of $53.27 to a close of roughly $68.75.  I happened to prosper off of the 10th's full-day increase, getting into SRS @ $55 and out of it at $61.  Although I probably should have held it, overnight holds in iETFs as volatile as SRS can damage your gains in a matter of minutes.

Technically, SRS is much less complicated than URE, for SRS has no problem picking a direction and sticking with it, as seen by its five-day rampage (9th - 13th).  The 11th was a flat day for SRS (even if it was a dream day for some day traders), but this particular day began to show signs of volume strength going into the 12th.  The 11th also set up a 3 day resistance, which eventually turned into a significant support level in about 1.5 days.  The 12th turned out to be a very profitable day, for mid-day, the price action and the volume amount pivoted on the dot, giving an obvious hint as to when the price was going to turn around from the open.  The price broke through the top level of the pennant trend, however, signaling SRS's overbought status, as well as an exit point for position holders.  From here, SRS's price plummeted, having a huge sell volume that broke above the high volume level by a mile.  The price also closed below the bottom level of the pennant trend, signaling an oversold status and a possible entry point (if you felt gutsy enough to trade it).  From here, the price increased until the close on the 13th.  On this particular Friday, SRS was showing considerable buy volume strength (which was increasing with the price), but again, to hold a volatile iETF such as SRS over a three-day weekend with the pennant trend beginning to squeeze and a Stimulus Bill in the works was a very risky move.  

If you ended up taking this trade, however, kudos to you; the iETF skyrocketed from $68.75 at the close Friday to $75.00 on the open this past Tuesday.  The 17th was as flat for SRS as it was with URE, the only difference being SRS was steadily increasing while URE was steadily decreasing.  If you watched closely to the volume on the 17th, however, there was a large overall volume decrease from the open to mid-day, and from mid-day to the close, there was a large overall volume increase.  This volume increase converged with the price action to the fullest extent, breaking above the high volume level on both the sell and buy volume into the close.  Another noteworthy topic of discussion concerning the 17th was its development of very strong support and resistance levels that held (for the most part) throughout the entire week.  The 18th opened up with a bearish, gravestone doji which turned out to be unreliable because from 9:45 am until 10:15 am, SRS had a 30 minute, extremely bullish price increase from $75.00 to $81.00.  For the rest of the day, SRS could have been day traded as it played within its Feb. 17th support and resistance levels.  A descending triangle trend also began to form with its base target being the Feb. 17th support, but the trend broke down after the price of SRS broke out for the entire day on the 19th and into the 20th until about 2:00 pm.  At this time, SRS jumped off of its domination cliff, retesting a new support level of $72.60 (possibly) formed back on the open of the 19th.  If tomorrow's open for SRS explodes higher, we now have a new support level that the iETF can work off of and that us trader's can look for in order to find some market direction when the price of SRS reaches that level.

Let's institute the RSI-FS%K indicator-based Trading System in order to see how well our technical analysis proved to be just by using support, resistance, volume amounts, price action, and price/volume convergence and divergence trading method:

URE  10 Day-15 Minute (T.A. w/ RSI-FS%K)

SRS  10 Day-15 Minute (T.A. w/ RSI-FS%K)

As you can see, the trading entry and exit points are almost identical (in most cases) with our run of the mill technical analysis.  The RSI-FS%K Trading System is used purely as a helper in order to maximize profits and designate proper and improper trading entry and exit points and is not to be used as the only thing to base a trade off of.  In my opinion, the price/volume convergence and divergence trading method is much more helpful in order to catch a trade on the fly.  The RSI-FS%K Trading System is just there as a confirmation tool to better your trading.

If you would like to see the backtested entry and exit points of URE and SRS when using the RSI-FS%K Trading System, click on the trading system's hyperlinked name above.  Another $100,000 portfolio simulation was used in order to show the extent of how good this trading system can be with a little more fine tuning, giving the Active Trader an edge when it comes to entry and exit points.

Looking at the week ahead of us, our country's largest news release will appear as Tim Geithner's plan to save the banks will be brought to the attention of the American public.  Initial Claims will also be a large, key factor in the market this week, as they hit new, century highs last week.  The Preliminary GDP report comes out this coming Friday as well, thus concluding that the market will be trading based off of how good or bad this GDP report will be.  The dangers of this week will become a reality tomorrow, and until we see if the support level for SRS held over the weekend or if the market has hit bottom for now, I think we may be in for a wild week.  My opinions for the outlined ProShares pair go as follows:
  • SRS - If the support @ $72.60 is held, I'm a strong believer of a continuation of a spiraling downward movement within the Global Markets.  Our market should be preparing for the worst in Tim Geithner's plan, thus we may trade lower coming into the beginning of this week.
  • URE - If continued strength is seen in URE, we may experience a potential breakout above $3.17 in this Real Estate ETF by late tomorrow.  If the market is ready to take on Geithner's plan with optimism (although I highly doubt it), the next stop for URE is filling it's enormous gap down that was created at the beginning of last week.
As for now, I'm 100% cash and ready to make a confident move on the direction of the market once I realize what that direction may be.  Tomorrow is crucial, and if you get on the wrong side of the market early this week, you might as well kiss your sweet toosh goodbye.  This week has the potential to be either long and painful or short and sweet!

I hope you enjoyed the 10 Day wrap-up for SRS and URE and gained some technical education, as well as a technical perspective, on this diabolical pair.  Good luck this week, and good night from MJTT!


ZM

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The MJTT Trading System Overview

Written by Zachary A. Musso On 2/19/2009 08:07:00 PM 1 comments
Good Evening to all and to all a good evening!  I must let all of you know that I am sick of reporting atrocious news about how sickening the market is with "noteworthy" articles and what not.  If you didn't listen to Rick Santelli's freak out today on CNBC, please click on the hyperlink attached to Santelli's name and watch it on YouTube.  Although it was somewhat similar to Cramer's, it was more heartfelt, honest, and 100% correct.  Because no one can say it better than him within the method of freaking out, I will not report news unless I feel it is urgent or factual (like an economic news release).

My new method is to educate whoever reads this blog in technical analysis and developing chart patterns.  My first schooling session is about MJTT's RSI-FS%K indicator-based Trading System that spots strong entry and exit levels on stocks, ETFs, and iETFs.  I have had a couple of inquiries as to how the system works, and through extensive test runs as well as actual trades with the system, it seems as though it is quite successful.

Let's start dissecting this particular trading system by telling you that it is a very powerful tool in the money-making process.  Although many more backtesting trials need to be run, the RSI-FS%K relationship proved to be very accurate on the entry and exit prices with the FAS/FAZ trades I put together this past weekend (for more information, please refer to the "FAS vs. FAZ - Bulls vs. Bears" article).  The backtesting proved the system to be correct 9/10 times for both FAS and FAZ, with some manual trading knowledge that was also seen throughout the system.  Knowing a good entry and exit price takes a considerable amount of trading experience in recognizing patterns in the price and the volume of a stock, ETF, or iETF.  In order to make these entry and exit levels close to perfect, the RSI-FS%K indicator-based Trading System comes into play.

That's all good and well that it's been backtested and is proven to produce great entry and exit levels, but come on now; what is this mysterious system and how does it work?  Allow me to introduce to you a blank chart of FAZ (10 day, 15 minute) as I introduce the Trading System step-by-step:

FAZ  10 Day

Looks like a pretty legit chart by only looking at its upward trend.  If you begin to diagnose the significance of what FAZ is attempting to show you through its pattenrs, however, you begin to say to yourself, "Jeez, I wish I would have gotten into this sucker before the weekend!"  Understandable, since the iETF exploded from its $49 close last Friday to its close today of about $70.  A $21 gain would have been a phenomenal trade, and you would have been rolling in it if you would have put buy order in before the close Friday.  The fear many traders had (including myself) was the dangers of holding such a volatile iETF such as FAZ over a 3-Day weekend, especially with all the hype of the Stimulus Bill.  A good way to check whether or not this iETF would have been a viable buy candidate (if you can't decide by looking at its price and volume patterns) is to look at some classic technical indicators that many traders use today:

FAZ #1  (Prior to Spike)

I decided to use a Slow Stochastic (SS) indicator, for it is a very well known stochastic and is commonly used in technical trading (I kept it at the suggested %K/%D periods for demonstration's sake).  Looking at this chart, the ending values for the SS are someone indecisive and, to say it frankly, sketchy.  With an indicator like this and a 3-Day chart pattern of very stagnant results, it's a risky technical trade to make and may result in a lot of money lost.  Because of this, I'll add another technical indicator in order to help us diagnose where this iETF's direction may go come Tuesday:

FAZ #2  (Prior to Spike)

In this chart, I have added the Relative Strength indicator (RSI) at the standard period of 14 in order to get a pretty good idea as to where the stock may be headed.  The RSI shows a large spike into Friday's close, which lets me know that the stock gained a considerable amount of buy strength compared to the rest of the week.  This indicator, in addition to the SS, allows me to gain a trading advantage over other traders and also gives the iETF a higher technical buy rating in my mind.

"These two indicators are great methods to dissolve some madness in charts," I say to myself.  "But standing alone, these indicators still didn't make the picture clear enough for me."  Because of this, I began trying new ways to delineate entry and exit points.  Here is where my idea of making the Slow Stochastic indicator a Fast Stochastic indicator (FS) came to mind.  If the Fast Stochastic indicator runs in quicker intervals than the Slow Stochastic indicator (showing more entry and exit levels), why not use the FS in order to gain a more active trading edge to your trading style?  From here, I put the FS to work on a chart and began looking at the way it moved:

FAZ #3  (Prior to Spike)

The FS showed that into the close, FAZ had a considerable amount of price movement and was a full out hold for the weekend.  The only question I experienced after this was, "What about how this price near the close relates to the prices from previous days in the week?"  I wondered if this spike was just a fake out and if the iETF would drop from a full strength position to a very weak and unreliable ascending triangle breakdown.  Here is where I remembered the RSI, and I decided to overlap the RSI and the FS in order to see the direct relationship between the two.  The only difference from the RSI two examples ago and the RSI I am about to show you is that the RSI's period is lengthened to 20 in order to show the relative price strength over a longer period of time:

FAZ #4  (Prior to Spike)

When I realized the relationship between the RSI and the FS, I noticed that I had something here in the works.  I saw that the relationship honed in on making important and accurate entry and exit prices more obvious to me.  Although the RSI and FS went hand-in-hand, there was too much clutter between the two indicators (what I mean by this is that having the RSI, %K, and %D all in the same location sometimes created conflicting entry and exit points).  Because of this, I decided to oust the %D.

Why did I do this?

I decided to do this because if you look at the entry and exit points of FAZ in comparison to the the relationship between the RSI and the %K, it is somewhat identical to the %D/%K relationship that comprises the whole idea of a "Fast Stochastic."  Understanding this, I questioned the validity of the relationship between the RSI and the %K, for if it's somewhat identical to the %D/%K relationship, why not just use the Fast Stochastic indicator and call it a day?

The question is legit and makes a very valid point.  I began investigating this, and I came to the conclusion that within the Fast Stochastic, you get the there-and-then price action entry and exit levels.  That's all well and good, but the uniqueness of the RSI-FS%K relationship is that you get more accurate price action entry and exit levels for a longer period of time, helping you determine whether or not you should hold the stock over a couple of days or not.

Putting the final piece in the puzzle, I decided to add a Simple Moving Average (I prefer a 20 Day), Bollinger Bands (using a period of 20 and a standard deviant of 2), and finally either a Relative Momentum Index (RMI) indicator if the market is trading based off of momentum OR a Relative Volatility Index (RVI) indicator if the market is trading based off of VIX spikes and overall market volatility.  The final product, therefore, produces the chart seen below:

FAZ  10 Day (Final Product)

With the %K breaking the RSI @ $47.50, the RSI-FS%K indicator-based Trading System fired off a buy alert, and as the stock price began to falter towards the close, the %K retested the RSI before exploding toward the upside.  The %K and the RSI both increased, showing the iETF's positive price trend and willingness to hold its current trading price.  This ended in the indicators giving FAZ the go for a weekend hold.  

This indicator, like all others, is NOT fail proof.  If you look at the "FAS vs. FAZ - Bulls vs. Bears" article, you'll see the RSI-FS%K indicator-based Trading System was backtested with a $100,000 portfolio, and, without a doubt, there was a major false buy indicator prior to one of the closes.  The trade ended up losing the portfolio a considerable amount of money, yet the next FAZ trade gained it back and almost doubled it.  I also highly regard you be at your computer constantly to watch the entry and exit levels, for some can be quick, unproductive, and dangerous.  This is why this trading system is exclusively for active traders!!

In my continuing research and backtesting for the RSI-%K indicator-based Trading System, I am currently attempting to find the mathematics behind the relationship to get a better grasp on how I can determine what are fantastic entry and exit levels and what are bad ones.  I am continuing to backtest the system, and I will post results weekly when I make trades based on the system's criteria.  

I hope this helps the inquiries for the people who were wondering how it works, and if you have any other questions please leave comments or email me.  Otherwise, good night from MJTT!


ZM

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What's Next?

Written by Zachary A. Musso On 2/18/2009 09:49:00 PM 0 comments
Today was interesting, to say the least.  With the $SPX closing down $0.75 to officially close at 788.42, not to mention the index was mixed throughout most of the day, the market showed absolutely no direction during the trading session.  I'm not seeing any market direction in my ETF/iETF watch list either, which makes me quite uneasy.  Because of this, I decided to get in and out of SRS today to take a $1.31 gain, buying @ $78.69 (quite late, for I was away from my computer when it begin pushing higher @ $75) and selling @ $80.00 before it dropped to its close of $76.21 (A-H price concluded at $77.75 with a volume of 69,750 backing the price action).  Other than this trade, I'm 100% Cash and waiting for the market to give me some sort of direction.  This, sadly, is where my novice-ness murders me.

In other news:


I thank Sean Delonas from the NY Post for gracing us with his absolutely hilarious cartoon.  He received some angry comments from none other than Al Sharpton, but come on:  When does Al Sharpton NOT complain about something?  Mr. Delonas, phenomenal cartoon; keep up your honesty and hard work!

Now for some noteworthy articles:
  • http://money.cnn.com/2009/02/18/news/companies/auto_bailout/index.htm - Cut me a break!!  How many times do people have to preach the, "If You Give a Mouse a Cookie" Theorem before our elected officials realize that pumping money into these two automakers is not only ridiculous due to its price, but also because of the principle of the whole fact; THEY SAID THEY WOULD BE FINE and now they're asking for more money on the same basis as the financial institutions:  "Trust us!  You know we're good for it!  We've learned our lesson, we promise we'll use THIS round of government funding for the CORRECT reasons!"  If Congress allots them the given amount, the Obama Administration will have some serious issues with popularity in this country.
  • http://money.cnn.com/2009/02/18/news/companies/ubs/index.htm?postversion=2009021818 - Yet another "Cut-Me-A-Break."  Indirect Tax Evasion from a large financial institution like UBS is completely uncalled for and despicable.  They now are being forced to pay $780 million to fess up the accounts of the U.S. citizens who they helped out in the process.  What is this world coming to?  Wouldn't it have been a whole lot cheaper to not help those people out?  Now look what you're dealing with, UBS: a nice, fat check and a "fraudulent institution" sticker slapped to your forehead.
But the most noteworthy article of today's action is the one seen below:


Welcome to the wonderful world of ObAmerica, where the country thrives from government spending and is lulled to sleep by the quiet chirps of our President's Blackberry at night.  This article is today's biggest "Cut-Me-A-Break," and let me tell you why:
  1. A direct injection of $25 billion MORE + UP TO $200 billion to stimulate capital for the famous Bonnie and Clyde of housing criminals, Fannie and Freddie (as well as giving these institutions the opportunity to potentially increase their mortgage portfolios by a supposed $50 billion).  This is just another way to pump more money into the struggling home insurance companies, allowing them to "modify mortgages" for the government.  Seriously?  Don't you think these two firms have done enough damage for one Housing Crisis?  Why not add AIG in there too, get the whole gang involved?  Hell, let's allow the folks to get some lending from Bank of America and CitiGroup after their mortgages are modified just to get them on their feet again?  This is an accident looking for a place to happen.  It's understandable that our government would go to Fannie and Freddie after their nationalization in September of 2008, but get real: with all the mistakes they made to drive their clientele into the ground BEFORE their bailout, why would you give them the right to modify these mortgages?  I've got an idea >>  Let's allow the Regional Home Insurance companies modify the mortgages of the people who need modification in their areas of living?  If the Real Estate and Housing industries have been so damaged by this catastrophe, why not let this work itself out the capitalist way and give the Regional Home Insurance companies the chance to become the ones who receive the credit for modifying the mortgages the correct way?  Just a thought...
  2. The changing of bankruptcy laws in order for this plan to work is asinine.  For God's sake, this administration is changing our entire system in order to spend their way out of our country's financial mess.  Welcome to our next Roosevelt, boys and girls.  What people don't understand about Roosevelt, however good an orator he may have been, is that the spending in his New Deal (worth $500 billion) didn't get the United States out of The Great Depression.  It was World War II that did this justice.  Pretending that WWII wasn't a factor, Roosevelt would probably be close to last on the Best President's List instead of 4th.  First it's Mark-to-Market, now a bankruptcy law allowing judges to rewrite mortgage terms loans created over the past years.  What's next?
This question really encapsulates where many minds are these days.  The $787 billion stimulus plan on top of this $275 billion housing plan are, in my opinion, too vague at this point.  They are also too anticipatory, meaning that Obama's administration is hoping that his "substantial incentives" will really make people want to participate.  These plans will show us very quickly that spending is not the way, for it sets up a country like the United States for failure.  I bid the Prez good luck...  And, through serious wishful thinking, good riddance.

So I ask you...  What's next?


ZM

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Sick (in the literal sense)

Written by Zachary A. Musso On 2/17/2009 11:25:00 PM 0 comments
Seems as though I've caught the flu (at least that's what I'm hoping, for if it's Mono, I'll be pissed) and will probably be put down for a couple days.  I slept pretty much from 6 until about now, and I still feel a tad left of atrocious.  Many apologies for pretty much disappearing today!

In other news, the market regurgitated all the bad things that are going on today, opening up with one of the worst week openers I've seen in a while.  If we're going to start getting into those "Monday Annihilation" patterns that many of us witnessed and complained about back in the fall, we might as well hold inverses over the weekend just to prepare for down week opener days.

Let's face it: today was the market spitting in Obama and his cabinet's face.  As I've been preaching since December 24, the banks are ridiculously insolvent and they will continue to be like this until one of them is forced to file a Chapter 11.  This would be a devastating blow to our economy due to the amount of money we've been pumping into these trash heaps just to keep them going.  If you want to see the House of Cards topple almost as quick as humpty dumpty, however, watch what happens when one of them files for bankruptcy; one goes, they ALL go.

Today's action in FAZ and SRS could have made anyone rich if they felt the need to take a large risk and hold them over the weekend.  If you're long any of these names, you're making some serious dough.  If you're like me, however, and swing trade them, you didn't really do much today at all unless you bought them at the open and sold them at the close.  Because of the recent action in SRS and URE, however, the Bulls vs. Bears edition of this ETF/iETF pair will have to wait until the weekend!

I am in full cash right now because I don't want to get stuck on the wrong side.  I stopped out of my DXO @ $2.25 (after cancelling my additionally 10% I was going to add prior to the open) and IEO @ $37 (I bumped up this stop, foreseeing that today was going to get ugly).  I love being 100% cash right now, for I can do whatever I want and don't need to feel compelled to buy.  In this stage of the game, however, the iETFs are beginning to look a little overbought, so I may have missed this time market annihilation and I may have to wait until we see a bear market rally, in which I will buy a large quantity of TNA, FAS, and a couple of other ETF names that will move like the dickens.  To be quite honest, I would not be surprised to if we ended in the green tomorrow!

For now, I'm going back to sleep.  I will leave you with an $SPX 20 Day chart and a good night from MJTT!

$SPX  20 Day


ZM

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MJTT Disclaimer

I am not, by any means, a financial analyst. All posts and tickers mentioned in them are my opinions and my opinions only. If you buy and sell ANY tickers because of my recommendation, you are trading at your own risk.

Zachary A. Musso - MJTT Owner/Author

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Fully Discretionary, Speculative Futures Trader - Technical Analysis Junkie - Bentley University Class of 2014.

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