DaviesTown.com/blog

[Posted @ 00:44:32]

Weeee! I’m done my finals. Happy~!

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Top in USO (United States Oil ETF) and oil & gas related stocks? Hmm. That answer is contingent on tomorrow’s price action. One thing is for certain though: if what I’m seeing is correct on the charts, there is a high probability of a top in crude oil and oil & gas related stocks. Here’s what I see:

1. In terms of candlestick pattersn: Shooting stars and bearish engulfings.
2. In terms of overbought/oversold oscillators: Overbought levels.

All charts are WEEKLY charts. Unless oil, gas, and oil and gas related stocks go up significantly tomorrow, there is a very strong tendency for oil and gas related stocks to fall next week!! These are one of those moments when you can just see it happening. Am I certain you ask? Yes, I am certain indeed. Would I put money on this idea you ask? Yes, if prices remaim relatively stable (i.e., relatively unchanged) then I would definitely open positions.

Analysis on THESE — USO then APA, CHK, HAL, OXY, SLB, and finally XOM! Okay. Let’s begin with USO:

Weak signal. Nothing particularly special (except the all time highs) about USO’s weekly chart. I just had to put it up here because it captures the recent price action seen in crude oil.

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Bearish engulfing anyone? The volume isn’t particularly high though. I would like to see volume to exceed last week’s amount at the very least to have this pattern appealing.

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Shooting star anyone? I would like to see CHK to fall a little bit to have a nice doji shooting star. Volume is nice.

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Okay, I want HAL to tank (emphasis added)! Look at this STEEEEEP increase in price over the last four weeks. from 36.28 on the week of March 24th to 47.43 on the close on April 18th. That’s a 30.7% increase over 20 trading days. Hmm. I think when holders of HAL see other oil & gas related stocks falling, they’ll take profits as well… while they still can. That’s my theory anyways.

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OXY! Pretty OXY. They came out with stellar earnings today (April 24th). Earnings of $2.23 beat forecast of $1.98 per share (an upside surprise of ~13%) yet afterhours show little enthusiasm.. Hmm. Interesting.

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Slumbergeeeee~ (without the r =P) NICE SHOOTING STAR! Just lacking volume heh.

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And lastly, I present, XOM: triple top anyone? Glaaadly! =)

Hmm. Think about it. Ask yourself one question, why did the markets rally this week?

It certainly did NOT rally due to good economic news. Poor unemployment numbers were released and unemployment numbers from January were revised from -22,000 to -76,000.February was revised from -63,000 to -76,000. So it makes me wonder what March numbers will be revised to… Bernanke also, for the first time, mentioned the possibility of a recession.

This leads me to ask: Why would markets rally? I can think of two reasons.

1) The market was expecting much worse this week, and/or
2) People are dumb enough to actually believe the talking heads on TV when they say we’ve hit the market bottom. As a result, they’re bidding up the market.

Unfortunately, for better or for worse, (2) is a highly probable reason. A few weeks ago, we hit a technical support area which initiated the bounce. Currently, the markets are near it’s technical resistance area (it can be seen on many many charts).

What are the chances of prices breaking through these resistances? Very low. I say, now is the time for us to drop back down to support. I’ll tell you why I think so.

1) The trend is our friend. We’re in a bear market. What’s the trend? DOWN!
2) Markets are near resistance. Incidentally, earnings season kicks off next week. [Contractionary Environment] + [Earnings Season] = [Sell Sell Sell]
3) Recession worries? I think worries will reemerge in the minds of irrational market participants once earnings start coming out. They’ll soon realize the US economy’s recession has just begun!

Here’s what Stock Tiger had to say…

The bad news jobs report on Friday confirmed the recession likelihood once again and the result was the market held its ground very well. Investors want to believe that this kind of bad news is priced in, as they think it is in the financial crisis and they look forward to a resumption of the bull market while calling this the bottom of the market.They are putting money to work in looking forward to the turnaround. After all, often by the time we see the weaker labor numbers the recession has been going on for some time and this makes some look ahead to the end of the recession.

As Butch Cooley, our weekly commentator points out, the housing market and financial problems may take a long time to unravel and repair so while a rally may be tradable it does not look like a long term bottom. In the Saturday Barrons they mention “..by the time the unemployment rate ticks above 5%, investors have begun anticipating a recession’s end, with the Standard & Poor’s 500 snagging an average return of 15.9% a year later.”

The buyers this week were not usual as they kept it up — even with bad news the sellers were not aggressive and pullbacks were bought. The problem was the light volume but this also suggests the shorts have yet to cover so a more aggressive rally may come after the the next pullback.

While the markets are over bought in general, at some point if this rally is to become more than a bear market one, we would expect to see much greater overbought conditions as bulls race to get on board and shorts scramble to cover.

With the greater than expected job loss report the headline unemployment rate went up to 5.1%. Economists were expecting an unemployment rate of 5%.

The largest losses were in the manufacturing and construction sectors. The goods-producing sectors lost 93,000 jobs, while the retail sector lost 12,000 jobs. Jobs at the professional and business services sector also dropped by 35,000.The services sector added 13,000 jobs compared to the 6,000 jobs it added in the previous month. Education & health services, leisure & hospitality and the government sector also added jobs

Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended March 29, showing that jobless claims jumped to their highest level in well over two years. The household survey shows the number of unemployed people rose by 438,000. Job losses since December are now at 286,000 in the private sector

Conclusion: I would be building a short position. With earnings season starting next week, we’re in for another volatile ride back down to support!

Following smart money is, for the most part, a sure bet =) Yesterday, my greed prevented me from closing a winning position, that fortunately, accelerated towards its resistance today. I should take note of of such undisciplined behaviours.

Anyways, FXI position was closed near the 137.70 fib level as laid out in a previous post.

A quick check at AAPL’s options activity indicates put selling (either naked put shorting or closing put positions) so I’m going to be a happy by-stander for this one. Although, I think there is a high probability AAPL will fall since its now trading near its 38.2% fib level at 144.59. Oh well, money says it won’t, so I’ll sit out.

CEPH seems to be ready for some shorting though… Major resistance is at 66.75 (its 50.0% fib level). In fact, it’s already sorta near that level. I won’t be posting an analysis but there’s a good chance it’ll bounce back down when it reaches near 66.50 (which is sorta now). Target close price of ~$62.5 or 58.00 depending on how fast it drops. Stop at 67.50.

Today I want to make my case to buy iShares FTSE/Xinhua China 25 Index (Ticker: FXI). Currently, FXI is trading above its support fibonacci level of 76.4%. This level is found if I connect the low and high in around a year’s timespan.

Let’s zoom in so we see the daily chart for the past three months…

As we can see, FXI bounced off it’s 76.4% support level yesterday and closed today at 128.35. Here’s when it gets REALLY interesting. Today, at around 11:40AM EST, a BIG buyer of options came in. Here’s my FXI options monitor. Notice the APR 18′ 08 135C and 140C in particular. Notice the HIGH volume compared to every other April option available.

More specifically, APR08 135C and 140C have over 3,000 units traded today… Hmm.. Let’s look into that further. Let’s look at the time and sales for these two options.

APR08 135C (2008.03.24 Time and Sale)

APR08 140C (2008.03.24 Time and Sale)

These two trades were done almost simultaneously (e.g., look at the 11:39:18AM trades made on both contracts) Putting this together, we can inductively infer that the same person performed the two trades! We get the following:

• 3,000 contracts of APR08 135 Calls bought for $5.60/contract
• 3,000 contracts of APR 08 140 Calls sold for $3.60/contract

In other words, this trade would have cost our friend..

+ 3,000 x 5.60 x 100 (Bought $1,680,000 of options)
- 3,000 x 3.60 x 100 (Sold $1,080,000 of options)
Total = $600,000 net (The person paid $600,000 worth of options)

So.. What does this mean? It means someone is betting A LOT of money in options expecting FXI to trade below 140 but above 135 before April comes around.

It gives me peace of mind when I know someone else in the world (with a whole lot more money to risk) is in a trade with me.

BOTTOM LINE: BUY FXI! Money speaks. And right now, it’s saying FXI is going to go above 130 before April. Sell when the price is near resistance at 137.68 (the 61.8% line).

So on Friday (Feb 22, 2008), I received an “alert” at around 9am from a member of “The Canadian Investment Club” recommending everyone to short ABK and/or MBI.. claiming that Standard & Poor’s will drop their AAA credit ratings on them. Well, later that afternoon (before the close), news came out that they don’t plan to. The stock soared from around 8.60 to 10.80 in about 30 minutes. This is what I said in response to the news (after the close):

Thanks for bringing ABK to my attention Jason. I’ll try and upload the Mar 10 calls candlestick px graph on my website by Tuesday morning. I hope you were stopped out in time or tracked the announcement today.. or maybe even reversed

For those who are still short: I did a quick TA and found that resistance is met at the $11.00 level. This is confirmed by the 20DMA, the mid-price line of the Jan 23 candlestick, and the descending trend line (made by the highs of Jan 24 and Feb 01). If it breaks through and closes above $11 on high volume, then it would be wise to cover (not necessarily go long).

**Just a note: I have absolutely nothing against the guy.

Moving on… the reason why I’m posting this so late is because my internet died on me and I’ve spent over an hour to try and fix it. Very annoying. My apologies to those who were counting on my charts earlier tonight. After news came out that S&P reaffirmed its AAA credit ratings for bond insurers Ambac Financial and MBIA the stocks soared. As I said on my post on Friday, “If [ABK] breaks through and closes above $11 on high volume, then it would be wise to cover.” Indeed, today it closed above $11 on high volume. Therefore, cover.

HERE ARE THE CHARTS:

Here is the underlying with Chaikin Oscillator clearly breaking through its previous high. Clearly above $11 on high volume. Clearly a signal to cover.

Here is the Mar08 10 Put Contract Historical from Bloomberg.

Here is the Mar08 10 Put Contract Intraday on Feb 25, 2008.

Quoted from Options Intelligence Report — “News emerged this afternoon that a consortium of leading banks has struck a deal to rescue municipal bond insurer Ambac, good news reinforced by S&P’s decision to maintain the Triple-A rating of both Ambac and MBIA. Shares in Ambac gained 14.6% on the development, closing at $12.28. Earlier today, option traders were positioning long volatility via the 10/12.50 strangle, paying a $3.15 premium – more than a quarter of the current share price – to profit from a break above $15.65 or below $6.85. The mood has now shifted to the upside, it seems, with traffic in the 12.50 calls picking up sharply this afternoon. Open interest in Ambac shows 1.5 calls open for every put.”

This play is dead and hopefully you will find the logic in you to cover your losses.

Last Trade: $11.40

Short Description: VASCO Data Security International, Inc., through its subsidiaries, engages in the design, development, marketing, and support of hardware and software security systems that manage and secure access to information assets worldwide.
Market Cap: 424.13MM

Fundamentals:

This company recently missed analysts’ estimates. Its share price got slaughtered even though the company reached its internal estimates. That’s important. Anders Bylund from the Motley Fool says, “much of the disappointment was with unrealistic Street expectations and not the business itself … The business is still going great and the revenue shortfall will be made up in the next couple of quarters. I don’t see that the future looks any dimmer than it did one day ago. In other words, the time to jump on this opportunity is now, before a first-quarter blowout erases some of today’s generous discount.” That takes care of the fundamental side. Let’s dive in and look at the timing of this stock!

There is one factor that I consider when opening a position: the technicals.

It IS, in my opinion, the most important tool in an investor’s arsenal to maximize profits. Looking at the technicals, the chart weekly chart looks like poop. The daily looks better but still is pretty crappy. TRIX has crossed zero, price has closed below long-term support level @ 12.48, the price has closed below 200d-SMA, there is a 20d-SMA bearish crossover. This looks bad.

Can it get any worse? The keeners out there will point out that VDSI’s industry looks like crap too. That’s actually a really good point. If you’re bullish on this stock now, you’re essentially fighting the sector trend too .. never a good thing. Here’s a picture of the S&P500 YTD sector performance chart that was taken from Bespoke on Feb 22.

Alright, so I’ve shared my thoughts on VDSI. What would I do next? Sorting through all this poop, I think VDSI is going up. Now don’t get me wrong, I’m not saying this is the bottom; I’m saying this is a good time to open a position. Do not open a full position tomorrow. There are times when a good company looks like it’s a great bargain when it just fell 20% from its highs, and there are other times when the stock gets discounted so much, you just can’t take your eyes off of it (for more than one reason). VDSI has fallen roughly 73% in three months. Nice. Uh.. for those of us who aren’t in it yet.

I missed the rapid descent down, but I won’t miss the ride allll the way up. Although it looks grim for the tech stocks.. although the technicals look like screaming sells.. although the US economy is heading into a recession.. my gut feeling is that this stock will rebound back to AT LEAST $14 within 2 months. That’s a 22% gain folks. My stop will be set at $9.00. Please use stop-losses. The chances of the stock falling another 20% from here is unlikely. The fact is, I can’t see any company specific news events that will push this stock further down. The only REAL risk is the recession fears. When you’re a bull in a bear market, you better be damn confident. That’s me .. for VDSI at least. =D

BOTTOM LINE: Buy VDSI. VDSI is oversold. This fact grossly outweighs the downward pressures on this small cap stock.

Sometimes I hate Fridays. Why? Why else? THE MARKETS ARE CLOSED FOR THE WEEKEND! It’s like being blind for two days. The comfort of constant market valuations and liquidity being taken away from you!

Imagine this. It’s Saturday. You shorted ABC stock on the close Friday due to excellent technicals and poor fundamentals. Now imagine how gittery you would feel if Warren Buffett, out to get you, announces that he thinks ABC’s industry is the next best thing. Boy, that’d suck. One thing’s for sure, ABC is going up. The question is.. by how much? You would start to wonder . . . How much value does his announcement have? How do other traders/investors see this news? How many other traders were short on Friday? How many will cover? How many new buyers will there be? At what price did the majority of people buy above Friday’s close? In other words, where are major resistances? What should you do next?

Sometimes I love Fridays. Why? Why else? It’s the weekend! That’s all I have to say about that.

I was trading NOV today.. An amazing stock. Today, it closely it followed the Fibonacci Retracements drawn out from a few days back. Here’s the chart: NOV_20080222 - Fibonacci Retracements. Pull it out to follow my analysis:

If we draw the Fibonacci Retracement from the low on last Friday to the high on this Thursday’s opening, we get the “magic” support/resistance lines! As we follow the stock on Thursday (yesterday), it bounces off the 50% line right before closing. NOV gaps higher on Friday, above the 38.2% line, but fails to maintain its price as selling pressure becomes too great. There was added downward pressure from declining markets as well. Consequently, the price flies by the 61.8% line and then bounces off the 76.4% line. It rests there; blowing off the rest of the selling pressures. As the price moves above the 9d-SMA, we see a LARGE candlestick penetrating and closing above the 61.8% line. This reversal is confirmed when the price bounces off the line in the follow periods. We also witness a 9d-SMA bullish crossover, further confirming the reversal. The next few hours, it incredibly trends between the 61.8% and 50% lines before making a break above the 50% line (with support from the 9d-SMA and 20d-SMA following the price closely).

NOV finally closes right below the 23.6% line, as shown in this picture. NOV_20080222 - Fibonacci Retracements (Closed)

Hopefully, you were able to follow all that. Amazing isn’t it? Of course, these lines don’t always work so perfectly. This is just an excellent example of how Fibonacci Retracements can be applied to real life!

**As a side note, NOV was able to fill the gap made from Tuesday’s open. Coincidently, the 76.4% line is EXACTLY on Friday, February, 15th’s close.