Dorm Room Daytrader

April 7, 2008

Indecision, indecision, indecision.

Filed under: Trading — naufal @ 11:08 pm
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My SKF long and BK short suggestions worked out very well, as did my HYTM short if profits were taken timely. My IIF short worked out for one day as I thought, but did not trend as I expected the next few days.

Today’s market opened well above yesterday’s close, based on Washington Mutual’s positive news, but declined throughout the day to close just above yesterday’s close. Again, the market movement was on low volume, the lowest this month has seen, in fact.

After hitting an intraday high of around 138.90, SPY shot back down. This significant level falls right in that 138.80-139.20 range that has been tested as resistance twice now. It certainly seems like short-term negative price action is imminent, as the late day sell-offs prevalent last week and today show people taking profits and the bulls losing energy as they reach this resistance. We’ll have to wait for a significant pullback to the 50 DMA to confirm that price is heading back to support, but short-term price action does suggest short-term selloffs coming soon.

The last sell-off from this resistance level was near the end of February, and its pattern and volumes are very similar to the price and volume action of the past few days. Volume has been in an overall downtrend since mid-March, which happens to be the last “low.” This all points to the market in being a consolidation trend, with a short-term sell-off back to support. I’ll look for a sell-off back to around the 50 DMA, which is also around a significant short-term support/resistance level, and if it breaks that level, a sell-off back to mid-March lows. The market will not be in a bullish uptrend unless and until 140 levels are broken, retraced to, and bounced off of in the SPY, and the 200 DMA starts pointing upwards. Today’s big sell-off of solars is another indication of negative price action on its way for the next week or two.

Here is today’s SPY chart:

So I’m bearish for tomorrow, but the low volume across the board keeps me away from overtrading. Cash is king in markets without defined trends. However, one short/put possibility I like is Nuveen Perf Plus Mini Fund (NPP). NPP witnessed the 200/50 DMA bearish “death cross” and is also bouncing off of resistance around 13.60.

I’m not looking to be long on anything tomorrow, and even my favorite bearish play long of SKF (UltraShort ProShares Financials) is out of the picture as financials are gearing up for a breakout, based on the rising triangle wedge visible in XLF (SPDR Financial ETF).

It’s a waiting game from here. We have to wait for a trend to develop, some volume to intensify with increased institutional activity, and we will take it from there.


April 2, 2008

Follow-through day on April Fool’s rally.

Filed under: Trading — naufal @ 11:06 pm
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Yesterday’s rally was one of the few big positive market stories of the last few months. It caused a lot of bullish sentiment that trickled into today’s follow-through day. The rally came on low volume, however, and by no means are we out of the water just yet.

Still, the April Fool’s rally was significant in that it broke the three-month-long downtrend. This also came after a double bottom, with SPY testing the 127 support level twice since the start of 2008. The rally and subsequent follow-through were on low volume, however, and there’s resistance in sight at the SPY 139 level.

The most bullish signal of all for the follow-through, however, is the fact that one occurred. All of the big rallies in the past few months have preceded big down days that erased much of the gains. Not so today.

I still think there is downtrend action left to occur and that the market has not bottomed quite yet. But this is a sign that good days are possibly in sight. Once volume retires to rallies, uptrends and hot charts will come with.

For now, though, I will look to be short, anticipating a retracement soon, with people taking profits, something that the follow-through showed had not been completed. The 50 day moving average should provide good support short-term for the market, so I’m also anticipating a retracement to that level. Most importantly, however, I believe new economic data and the Bernanke speech have yet to be priced into the market.

Here is today’s SPY chart:SPY 4-2-08.

So I’m bearish for tomorrow and will be looking to short stocks and buy puts. I am specifically looking at buying puts on BK (Bank of New York Mellon). With a huge sell-off today on monstrous volume, the chart looks bearish enough, but issues are compounded with its 200 DMA approaching its 50 DMA on the bearish side. Stochastics are around 35, so it still have plenty of room to fall before it’s oversold.

Financials in general will be a focal point for me tomorrow. SKF (UltraShorts Financials ETF) is one of my favorite bearish financials plays. It attempts to mimic double the inverse of the Dow Jones Financials price movement. I will be looking to buy calls on it tomorrow.

On a bit of a more speculative play, I will be looking at shorting/buying puts on IIF (Morgan Stanley India Invest Fund). The 200 DMA just crossed the 50 DMA today downward, as the stock bounces off a resistance level tested four times now. I’m looking for a big sell-off tomorrow on high volume. There is a possibility of an early morning spike beginning tomorrow, considering its late-day rally today, that I will take into account.

A microcap play I’m looking at is HYTM (Hythiam). After an exponential surge the last three days and up 22% today, it looks like this is just another microcap runner. It is down 9% after hours and I will be looking for a quick 10-15% gain by shorting it tomorrow after a possible early morning spike.

Feel free to post comments, everyone.

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