READER'S REQUEST - Goldman Sachs (GS)

Goldman Sachs (GS) is in a holding pattern, forming a symmetrical triangle. The characteristic of this type of triangle is that a breakout of breakdown can happen on even 50/50 odds. The result, breakout or breakdown, will be the continuation of the direction of that move. High-risk traders can take a gamble and get in now an hope that they're right, but I prefer to wait for the definite move and trade the result which is a more low-risk trade. The green lines indicate the nearest support and resistance areas to guide you to where GS will eventually head to.

A BEAR MARKET IS LIKE PLEBE SYSTEM

Hi. For my freshman and sophomore years in college I attended Valley Forge Military College in Wayne, PA. It was a private, all-male college and it was absolutely brutal. Before anyone becomes a cadet, they must first pass the rigorous 6-week plebe system. This is where you get molded the way the institution wants you to be and all military academies have it. The people at the admission office watered it down by saying something like "you're going to have a good time". That was completely wrong. In fact, during plebe system in 2002, I caught pneumonia and almost died! I also lost 15 pounds. It was extremely difficult and I think the drop out rate was around 20%. There was constant marching, taking orders, "squaring" meals, room and formation inspections and everything else. You always had to be on your toes and ready, just as a trader is always ready to attack the market.

I did make it out alive though, but I can't say it was easy. Looking back, I realized that everything I learned, all the s- that I took, was actually beneficial to me. In a bear market, things will get worse, but it is required and necessary. Bear markets correct the excess of the previous bull market and they are required for the next bull market to begin.

Here are some pics that I found:

This was my barracks, headquarters of F. Company which belonged to the college. The room was about 14' X 12', no carpet, and had a small radiator for heat. The basement was where all the bathrooms and showers were located. If you lived on the top floor, you had to walk down 4 flights of stairs!

Here's what the showers looked like! Would you take a shower here?

This is my wall locker where I kept all my 'stuff'. Everything hanging on hangers must be fully buttoned up (even though they're not being worn). The clothes on the shelves must be folded with a 6-in width. If it's not up to code, the inspectors will trash your wall locker and tell you start all over.

Here is my desk. Look how clean and organized it is. It's not by choice, it's required. Look at my bookshelf especially. Notice how I have no trading books whatsoever. This was about 2-3 months before I started trading. Now I have a combined 1,000+ collection of books and e-books in trading and finance. I do have the 'Boiler Room' DVD though.

Before we go anywhere, like go eat, or go to class, or anything, we had to stand in formation on our company area right outside the barracks. The uniforms that the cadets are wearing is the parade uniform, 100% wool - good for winter, but kills you in the summer! Shoes and all brass must be shined and we spent at least 1hr a day doing just that.

This is the parade field. We had to march in a parade every Sunday. The whole thing takes about 4 hours of your time. We carried 13 pound rifles for that duration.

Yes, we marched in snowstorms too. No exceptions.

This is 1st Sergeant Ansbro, our F. Company tactical officer. See that bag he's holding? That's a bag full of plastic spoons. What happened was that some idiot decided to throw a snowball at him and since no one came forward to admit it, everyone was brought outside and we had to SHOVEL the company area with SPOONS without any gloves in the dead of winter. He was pretty mad.

ROTC was a required part of education and there were frequent FTX's (field training exercises) on the weekends.

If there actually were girls on campus for some kind of special event, it was like hitting the lottery.

As bad as the first 6 weeks were, the rest of the 2 years were great. I ended up graduating 3rd in my class, summa cum laude, and also retained the 7th highest rank in the regiment as a 1st Lieutenant, Headquarters Commandant.

THE BATTLE FOR WACHOVIA

It sounds like a war, doesn't it? It's the corporate type that will most likely end up in court somewhere. Citigroup (C) offered to pay $2.1 billion for Wachovia's (WB) banking operations just 4 days ago. What I don't understand is how Wells Fargo (WFC) could go behind Citigroup's back and do a deal, just like that. A copy of the exclusive agreement between WB and C can be found here.

Remember over the weekend, both WFC and C were involved in a bidding war? If it was a genuine bidding war, how in the world did WFC come up with the $14.8 billion figure in a matter of days but not be able to control WB's banking operations on Monday by bidding a bit higher than $2.1 billion?

WFC has an uphill battle to fight since the FDIC is backing Citigroup. Citigroup also has some legal merit since their agreement with WB states that WB "cannot enter into any transaction with any party other than Citigroup or negotiate with anyone else". Not only that, shareholders and regulators will have to approve of this deal, and with the mess that WB's in, it'll get pretty complicated. This is sort of like having two girls like you, but you have to chose only one (both if you're a freak). The difference is, you can't choose which one you want to be with!

By law, the FDIC is required to find the least-costly resolution for taxpayers and since WFC's deal isn't requiring gov't assistance, that would be the solution. Citigroup's deal relied on gov't assistance, but was the first to consummate a deal with WB. (Citigroup agreed to take on up to $42 billion in losses from WB's portfolio and the FDIC will cover the rest in exchange for $12 billion in C preferreds and warrants). Two large institutions with a lot of lawyers and money -- this could get ugly.

Who will win?

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

WEEKLY SECTOR WRAP-UP: Sept 29 - Oct 3

This week was an emotional rollercoaster for investors. The volatility was probably embraced by traders, but I’m sure it wasn’t easy for them either. I can say for a fact that although I made out ok, there were times where if I didn’t act quickly, I would have been in trouble. If you’re a trader then you’ll know that it was one of those weeks where we had run in and run out of the bathroom really quickly if we needed to use it. Every tick, every one-minute bar was important. We’ve seen sudden and major reversals for most of the days this week and also made financial history nearly every day. With the bailout bill finally passed and signed by the president, this week marks as one of the most important historical market milestones that none of us will forget. People will be writing countless books on the events of this crisis.

It is important for investors and traders to analyze every week’s market action to determine what their plan will be for the following week. I attempt to present that information in my weekly sector wrap-ups. Although I use only the SPDR ETFs, they are applicable to individual stocks – just pick the sector they’re in. In a bear market, 4 out of 5 stocks follow the decline and we have seen some major declines this week. We’ve become so numb that 100-150 point up or down days are considered “normal”. I know that they don’t have much significance to me anymore. If you thought that the 778 point down day on Monday was bad, we are highly likely to see those magnitudes again in the coming days and weeks. We are in the middle of the markdown/distribution/selling stage of the bear market. Expect excessive selling from institutions and individuals alike. They’re only concern is to save their accounts with whatever capital they have left. This will create more volatility. It’s important to keep that in mind going forward into next week.

The Materials sector (XLB) was the sector that declined the sharpest. In this sector we have the commodities and chemical names, both of which declined considerably this week. Take a look at names like CF, POT, MOS, MON, NUE, WLT, and FCL. You didn’t want to be long in any of those names. The sector has not finished declining but we may see a bounce from the $30 level we are currently testing. After the bounce, I advise taking on short positions and the names listed above are a good place to start.

Of all the sectors, the Utilities sector (XLU) is the last sector to decline. Notice how they recently broke the neckline of their head-and-shoulders formation. Start looking for names to short in this sector and plan to hold for several months. Trader’s looking to short and go on vacation for 1-2 months will do extremely well here without much worry.

The Technology sector (XLK) may hit close to 10, or where the bottom of the NASDAQ bear market occurred. If we break this last support level (indicated on the chart), then the possibility is extremely high.

The Industrial sector (XLI) is still in its early stages of the middle part of the decline. Out of the top 10 holdings in the XLI, 8 present excellent intermediate-term short candidates. They are: CAT, MMM, UPS, UTX, BA, HON, EMR, and UNP. DE and GE have fallen considerably and do not present favorable risk/reward ratios as the others. We have a while to go on this sector.

The Financial sector (XLF) has broken through 2000, 2002 and 2003 lows. IT is safe to say that we are not even close to forming a bottom here. We should see a sharp decline in this sector soon. This 10-year chart is the entire chart for the XLF since inception in 1999. We have no more support levels remaining.

The Energy sector (XLE) should hit 50 in the coming days. This has nothing to do with fundamentals, this is what the chart is dictating – we have room to fall further. We broke major support at around 62 and will test 52 next.

The Consumer Discretionary sector (XLY) is falling fast and hard. Unlike the staples, people actually have a choice whether they want to spend on these items. Since consumers are hardly spending and will continue that trend, this sector is far from hammering out a bottom. Currently testing 25, I expect the XLY to hit 20 shortly.

The Consumer Staples sector (XLP) is doing extremely well this year. That is expected because they perform well in hard times. If an institution needs to get allocate capital, they might as well go with the consumer staples and ditch everything else. This is the strongest sector out of all sectors.

The Health Care sector (XLV) is testing the 30 support level once again. This will be fifth major test for the sector in the past 3 years. We may see a bounce, but I ultimately see the sector making a new low. Note the descending triangle that has a high reliability with breakdowns.

Don't forget to test out the Free Trend Analysis. It's FREE, give it a shot!

TECHNICAL ANALYSIS CONTEST!!!

Hi. INO.com, a partner with WeeklyTA, is featuring a technical analysis contest, open to all persons. The question is, "What is your favorite technical indicator?" I entered just a few minutes ago and stated that my favorite were the moving averages, more specifically the 10, 15, and 20-day MA's for longs and the 5, 10, and 15-day MA's for shorts. What's your favorite?

All you have to do is leave a comment with your favorite, and your automatically entered to win a 6 DVD set that covers the following topics:

1) Construction & Application of the MACD Indicator
2) The Theory of Momentum & Lane's Stochastic
3) The Relative Strength Index Explained
4) Classic Technical Analysis as a Powerful Trading Methodology
5) Applying Fibonacci Analysis to Price Action 1
6) Applying Fibonacci Analysis to Price Action 2

So what are you waiting for? I entered, and so should you!

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

READER'S REQUEST - S&P SPDRs (SPY)

I was asked to analyze the SPY. The ETF made a new low today and it won't be the last one, that's for sure. You really have to look at 5 and 10-year charts to see where the SPY really is and how much further down the ETF possibly has to go. The SPY has some support at this current 110 level, but I doubt it will hold for long. Especially looking at a 10-day, my choice to be bearish on the SPY comes as obvious. I highly DO NOT recommend any long positions in the SPY.

SPY Year-to-date chart

SPY 5-year chart

SPY 10-year chart

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

TODAY'S ACTION

S&P 500 (SPX) 1-day chart

We are highly likely to head lower from here. All positions entered today were 100% short since the breakdown. Again, there was a slight delay from when the votes were completed and when the decline actually occurred. The first breakdown from support was an obvious decision to go short and further breakdowns confirmed a hold in those positions going into the weekend.

S&P 500 (SPX) 3-day chart

Here is a 3-day chart. The support line for today existed 3-days ago. We also broke yesterday's support. We ended the day by forming a continuation flag.

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

TODAY'S BREAKOUTS & BREAKDOWNS

This is the most depressing article on breakouts and breakdowns I have written so far. Why? Because I found no breakouts worthy of any special attention. We had only 3 new highs made today (ACC, JPM, DMND), and we made 1,076 new lows. That’s worse than yesterday’s 4 new highs and 778 new lows. You are almost guaranteed to get no major upswing at this stage of the bear market. In the third primary leg (which we are in), Robert Rhea, one of the masters of Dow Theory, wrote that this leg and the following legs contain the most violent swings in the market. He also wrote that this is the stage where most people attempt to liquidate their holdings. I follow all of Rhea’s and in 1932 he wrote that “this will continue until securities prices reflect the sum of our fears”. Sorry folks, we have not reached that level yet.

Today wasn’t really a major down day (“only -1.5%”), but all the major indices made new lows today, only 4 days after we made the previous low. Long-term investors will have to mentally prepare themselves because the following weeks and months will seriously test your resolves. Remember in a previous article I wrote about the “waterfall club”? If this is your first time reading my articles, the waterfall club is basically my saying when a stock becomes vertical (parabolic) and all you need is a 6 in. ruler to perform the test. It seems very childish, but it’s simple and not to be argued with. The market just got approved for its entry-level membership. I also mentioned that the market will be hitting new lows in a previous article, this will remain true.

I will also stress that the lack of short-sellers covering to buy is providing the fuel for the market to drop further. All throughout the week, I noticed that buying pressure remained extremely weak. Tuesday’s rally was one of the shortest reactionary rallies I’ve seen this year and we can contribute that to the lack of buyers. This only supports my bearish case and I am short as of about 1:28PM today. I have no intent to cover anytime soon.

Since there are so many breakouts, I selected just a few with my comments on each chart. I typically provide the breakdown sections for future short opportunities, however, given that so many long-only investors are getting killed, I added the comments to help you identify warning signs. If you are long, you may want to check your portfolio for stocks that exhibit the patterns I will be describing. Technical analysis gives traders and investors first warning - the opportunity to exit positions long before they get crushed. However, most financial professionals do not know how to utilize this powerful art or just never bothered to learn. I’ve said it before, and I’ll say it again: don’t ignore chart patterns; they’re trying to tell you something!

Here are today’s breakdowns with detailed warning signals:

Lesson: Don’t own a stock that’s going to end up on my poop list.

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

GREAT SHORT IDEAS

I will short or consider shorting the following stocks today:

BZH looks like a good short because of the flag forming after the 50-day MA failure. The stock also broke its uptrend entirely. I expect the stock to retest the $3.50 level.

APP formed a really great pattern here. The stock is testing the 50-day again and it doesn't look like it will hold. Also notice the break in the uptrend. The stock finds support at $7.

NPSP was a stock that formed a new high, however, the stock formed a breakaway gap. This stock is toast and is a definite short for me.

Please read the important disclosures at the bottom of the page prior to considering any investment decision.

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

NASDAQ ($COMP) MAKES A NEW LOW

Only the NASDAQ made a new low today. The S&P 500 came REALLY close. We are now at 1,976.72, sub-2,000 once again. Volume is at 2.2 Billion from a high of 4 Billion. Ever since the ban, all exchanges basically saw volume dry up by about 50%. If one index makes a new low and the others do not, the divergence will soon be corrected.


Here we have a 4-year chart showing you where we are in the big picture. The next support level is at 1,900 (2005 levels) and it looks like we will hit it.

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

READER'S REQUEST - McDermott Int'l (MDR)

(click chart to enlarge)

I wrote an article on Seeking Alpha, a sort of a warning, in August that MDR would hit $26 as support, which it did. The pattern broke down and completely failed which is an automatic bearish signal. Using technical analysis, this decline could have been avoided. Here were some clues (in order):

-Break in the 50-day MA
-Break in the 200-day MA
-Bearish moving average crossovers

After that, it was over. There was (is) not reason to hold the stock. Let's look at a 3-year chart:


Doesn't look good at all. I'm not saying that MDR will hit sub-$15 BUT the possibility is extremely high. After $20, there are no more major support levels left. In fact, on the next slight pullback, MDR would be added to my shortlist.

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

TODAY'S ACTION

Today was another meltdown day. But it was coming. In previous posts, I did mention the importance of triangles and that a breakout or breakdown would be significant. In this case, we broke down right at the open.

The green circle was a great timeframe to go long the agriculture/fertilizer stocks I despise so much. My signal for always going long is if a higher low has been made. That means we've climbed out of the ditch. Below is an intra-day chart and you can see the head-and-shoulders form at the end of that rally. That was my signal to go sell and go short again.

There's a difference between these type of rallies and power rallies that spike upward till the end of the day. First, notice the numerous corrections in the rally and how irregular and more frequent they were becoming. A healthy rally should exhibit strength, not frequent corrections. This failure at the top signaled that we would not fill the gap (although my IPI long did very well and nearly filled the gap). We hung out for a bit until at 2:30PM we broke intra-day support. It was completely over by then. You can see a previous post (several down) where I actually commented on my actions throughout the day.

Technical analysis is not a crystal ball, but it does help you in assessing what is happening now in relation to the past. Best of all, TA provides clear cut entry & exit points like I've demonstrated today.


Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

DUMBEST ARTICLE OF THE DAY

CNBC has this article on their site titled "Panicky Investors Making Some Bone-headed Moves". The article was so dumb that it prompted me to start a new feature: Dumbest Article of the Day.

So basically the gist of the article is that investors are threatening to pull their money out but financial advisors are desperately trying to hold onto them. The author thinks that investors wishing to sell are making a bone-headed move. You know, if the financial advisor actually sold a long time ago when the market broke down below the 200-day MA on January 2, they wouldn't even be having this trouble.

Here's the problem: All those financial advisors and money managers have all been taught from the same school of thinking which results in the same....results. I can even tell you that perhaps 95% or more of these "advisors" do not know what technical analysis is yet they have the nerve to make recommendations in stocks dropping like a rock. If they did know, they wouldn't be fighting so hard to keep their assets. The advisors look like the bone-heads to me.

Here are some comments from the article with my response:

“If the market doesn’t recover, I may have a different story to tell” about more rash moves, he (Jeff Sprowles) added.

LOL...if the market doesn't recover. That tells me that you have no clue about how bear markets work. Keep hoping pal, maybe they'll recover for ya.

This lady should keep her mouth shut:

“As always in turbulent times, we are seeing clients who want to go to cash and ‘wait it out’ then jump back in later when times are less scary,” says Elaine Scoggins, a financial advisor with Merriam Berkman Next, in Seattle, Washington. But "this I exactly how fortunes are lost."

Elaine, being in cash is probably better than leaving you my money. Perhaps, if you recognized trouble before hand, you could have gotten your clients out. What are these people pay you for? Just because you need your fees doesn't mean that you have to mislead investors. I think you're doing it unintentionally, because you have zero clue whats going on.

Check this one:

Scoggins says it helps to remind clients thinking of bailing out that markets will rebound “like a rubber band’" once they have bottomed out.

LOL. Stupid. I hope she doesn't think the bottom is "right around the corner". How do people actually fall for the stuff that these people pitch? That's how uneducated the American public is on the market.

Don't forget to try out the Free Trend Analysis. It's FREE, so give it a shot!

TODAY'S BREAKOUTS & BREAKDOWNS

You know what pisses me off the most? People who do the exact opposite of my time-consuming analysis. For example, someone who called me had the nerve to go long the material stocks today. What an idiot, and I’m not afraid to say it either. That was stupid beyond belief. He is now a “long-term” holder. I should have just hung up the phone.

When I highly not recommend something, it’s for a very good reason. Today is one of those days that make that reason reality. Who else gets on my nerves? People still hoping for that huge explosive rally. I guess they can blame it on human nature, but still, people get to a point where they have to see the reality of what’s going on right now and what the market is telling them…right now. We might get a major rally if (when) the House clears the vote, but the market just sold off after the Senate vote. It’s good to stay in all cash once things clear up. If I don’t have prior experience with an experience, then I’m not trading it. It’s like an IPO…I’ll never trade it when it first comes out.

We hit 4 new highs today and 778 new lows. The imbalance between the new highs and new lows is getting larger and larger. To confirm any type of rally, I have to see some type of improvement in the new highs-new lows indices for the NYSE and the NASDAQ. When I say there is an imbalance, this is what I mean:

So my question to the people who are hoping for that major rally is, “How on Earth are we going to rally if the NH-NL lines look like this? The Advance-Decline charts look just as bad. No trend lines needed; these chats remind me of my ski trip at Park City, Utah, more specifically, riding down the double black diamonds with some messed up looking moguls.

We had 3 breakouts today: Atmel (ATML), TreeHouse Foods (THS), and Diamond Foods (DMND). Interestingly, 2 out of three are food stocks, just like my favorite – CPB. I have no clue why they’re doing well, and I don’t care. All I need to know is if they’re the best performing stocks in the entire market. So if you want to go long, don’t do what my friend did, but rather, go for these very, very few stocks that make new 52-week highs. Stocks that are up on days like today exhibit unusual and maybe even supernatural strength. Kidding, but consider these stocks for possible long positions if you need defensive positions.

ATML is a type of swing trade; notice the wide ups and downs. ATML formed a breakaway gap to the upside today and finally has a chance of not hitting $3.20 again in the short-term.

THS formed an ascending triangle and broke out today. These are the types of stocks I would put my money in. I don’t care what the media says what some “guru” is recommending on TV or anything else. There’s only one criterion – the chart must support my decision to go long, and they do.

A similar pattern as THS above, DMND breakout to the upside while almost everything else liquefied into a huge mess. Don’t forget about CPB!

We had many, many breakdowns today. Most of these stocks lost 20% or more of its value. Even with a nice sized rally, some of these stocks are so deep in the hole, they don’t have a chance. It’ll take these stocks below a very long time to stabilize. In the meantime, feel free to short the ones that pullback to resistance, but don’t even think about going long. Here are today’s biggest losers: