Trade Ideas for 04/09/09

Today was a wild see-saw day that ended with the market green for the first time this week. Between yesterday and today, the S&P tested the 815 level several times, and each time the level held. After five sessions of consolidation, the market may be ready to move. Because this was a relatively long basing period, the follow-on move has the potential to be explosive. A reminder that the market is closed Friday, so this will be the last post this week.

Today we bought CMED and LDK. MET gapped up far above the buy price, thus invalidating the signal, so it isn't counted among the new purchases.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
MELI	17.39	19.42	+11.7%	17.99	N/A	Chart
CMED	16.64	17.59	+5.7%	15.99	N/A	Chart
LDK	7.64	7.74	+1.3%	6.49	N/A	Chart
CLS	3.24	4.56	+40.7%	4.35	N/A	Chart

Let's see if the uptrend from early March is ready to resume.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
UAUA (UAL)	5.89	5.40	N/A	Chart
TMX (Telefonos de Mexico)	16.72	16.25	15.96	Chart
UWM (Ultra Russell 2000)	15.11	14.22	N/A	Chart
PLD (ProLogis)	7.73	6.49	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.

Trade Ideas for 04/08/09

Short-term prospects for continued upside were dealt a blow today as prices retreated, and the blow may prove mortal should the market fail to advance tomorrow. The major averages failed in their attempts to resist the gap up formed last week. Some averages closed this gap completely, and many formed new ones with this morning's opening gap down. Momentum is to the downside. In addition, the S&P broke down below yesterday's channel. However, the medium-term bullish picture hasn't changed, with the 50-day moving averages flattening and shorter-term averages pointing up. After a week of encouraging, but unfulfilled, action, it may be the case that lower prices are ahead in the next 3-5 days, although the intermediate trend is up and could exert its influence at any time. The SEC debates reinstatement of the uptick rule tomorrow, which could potentially change the rules to the detriment of the bears and move the market. Note that Friday the markets are closed in observance of Good Friday.

No changes in our holdings.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
MELI	17.39	19.17	+10.2%	17.99	N/A	Chart
CLS	3.24	4.40	+35.8%	3.71	Consider selling on a close < 4.25	Chart

A few charts in case the buyers step it up tomorrow.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
MET (Metlife)	25.76	23.99	N/A	Chart
CMED (China Medical)	16.64	15.99	15.58	Chart
LDK (LDK Solar)	7.64	6.49	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.

Trade Ideas for 04/07/09

Today's action extended the consolidation to three days, and many, many charts are now set up very nicely for a breakout (should one occur). We did dip a little further into the gap I mentioned in the last post, but rallied solidly off of it. The channel in which the market has been trading should break soon, and while odds favor upside, one can't rule out a break to the downside. The advantage of buying the breakout, rather than in anticipation of the breakout, means the latter case won't cause us to take on new positions.

Sadly, we were stopped out of SOL today by a couple of pennies.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
MELI	17.39	19.59	+12.7%	17.99	N/A	Chart
CLS	3.24	4.35	+34.3%	3.71	Consider selling on a close < 4.05	Chart

The great thing about lengthier consolidations is that a breakout above the consolidation zone has more potential for continuing higher. I think now is as good a time as any to risk a bit more than usual.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
UNM (Unum Group)	13.96	13.11	N/A	Chart
UWM (Ultra Russell 2000)	15.89	14.79	N/A	Chart
ACI (Arch Coal)	15.06	13.99	N/A	Chart
PLD (ProLogis)	8.41	7.42	6.84	Chart
ACM (Aecom)	28.67	27.16	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.

Correction

In my last post, I stated that Wave 3 was the most powerful of the waves. This is incorrect. While it sometimes feels like this, the actual rule is that Wave 3 is never the shortest out of Waves 1, 3, and 5, on any timeframe. Also, more generally, these past couple of weeks have demonstrated that there are always alternative Elliott Wave counts, and it doesn't pay to be overly reliant on a particular count. So let's take a look at other aspects of the market.

Market action the past few days has certainly been bullish. Watching the tape, I've noticed that buyers have been quick to get in on any pullback. For example, what began as a Friday afternoon selloff at 2:30PM actually ended up as new highs on the day. This suggests that market participants don't want to risk missing out or being caught with short positions over the weekend. Up until now, people didn't want to risk being caught long over the weekend! Meanwhile the drops in the VIX, gold and bonds suggest increased risk appetite. However, among these encouraging signs, one note of caution is the gap between Wednesday's close and Thursday's open: An overwhelming majority of gaps eventually get filled, and most of these get filled immediately. They're like little black holes; it takes great strength to resist the pull. Conversely, the ability to resist the pull implies great strength. I'm impressed by how the gap was defended on Friday; prices dipped a toe into it, but that was it. It's a virtual guarantee that this gap will get filled eventually; in the short term, it puts a bit of pressure on the bulls to forge upward quickly.

PS: Check out that strong 3-day bounce off the 50-day moving average (blue line)!

Trade Ideas for 04/06/09

Had a great powwow today with my mom, the resident Elliott Wave expert in the family. I felt off by a beat in my commentary the past two weeks. A couple Fridays ago I observed that the path to new highs was a slog. When things don't feel right, for example a higher high that feels more like a lower high, my mom explained, one should think B Wave. This past week, when I thought the C wave (within the B wave) was about to unfold, it had in fact already unfolded, and the huge drop at the end of the day Tuesday was actually a Wave 2. Wave 2 is one of the trickier waves, because it can fall very far, very fast, seeming like an A or C wave at first. The key difference is that what follows wave 2 is the most glorious of the waves. OK, enough talk; upshot is, the correction phase is over. For the next week or two, the likely path is up, and that, furiously so. How about a picture: This chart shows an a-b-c correction where the B wave exceeds the top of Wave 5. Such a correction is known as an expanded flat, and it implies great strength in the direction of the B wave, in this case up. Further credibility is lent to this count by the fact that Wave c of the a-b-c was 1.618 times the length of Wave a (the ones labeled in light blue). Yes, there is ideally a Fibonacci relationship between waves A and C; either C tends to equal A, or it tends toward 1.618x, 2.618x, 3.618x, etc the length of A. (1.618 is the golden ratio: the ratio of consecutive numbers in the Fibonacci sequence as the sequence approaches infinity. Check out Wikipedia to find out more about this remarkable irrational number.)

Better yet, based on this count, we find ourselves in the midst of the most powerful of the impulse waves, Wave 3. As such, it's time to be skeptical of pullbacks; they are more likely attempts to shake us out of positions than starts of brutal legs down. Best of all, we can project a potential target area for this counter-trend rally. Based on the rule-of-thumb relationship between Waves A and C, the target range for this move is SPY 93-103 (referring to the labels in red). (As a note of caution, sometimes Wave C equals 0.618 times the length of A. However, this type of situation indicates weakness in the direction of the a-b-c, and so far we have reason to believe quite the opposite; that the move is powerful and deeply supported.)

What this means for my system is looser stops (because we don't want to get stopped out on a fake-out move), and increased risk per trade. But within this pocket of bullishness, it's still important to keep in mind that the prevailing trend is down. It's vital to get out when the market turns south for real, because this rally shall end in horror.

Friday we were stopped out for losses in VIVO and EGO, the latter when gold took a dive.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
MELI	17.39	19.57	+12.5%	17.99	N/A	Chart
CLS	3.24	4.15	+28.1%	3.38	N/A	Chart
SOL	4.01	3.84	-4.2%	3.59	N/A	Chart

Long ideas for Monday. BGU is another Direxion 3x ETF and ought to be sold by the end of the trading day if elected.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
MI (Marshall & Illsey)	6.51	5.79	N/A	Chart
ITRI (Itron)	48.61	46.77	45.18	Chart
XHB (S&P Homebuilders ETF)	11.76	11.20	N/A	Chart
UWM (Proshares Ultra Russell 2000)	15.89	14.99	12.69	Chart
BGU (Large Cap Bull 3x)	27.23	25.49	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.

Trade Idea for 04/03/09

Today was interesting; a huge up day where the bulk of the rise came from the overnight gap. After the wild gap, the market managed to make a new uptrend high. It apparently liked the mark-to-market news quite a bit. But now we are sorely due for at least a minor pullback, if not more, and the sooner the better. If the market keeps soaring, it'll ratchet up the pressure on the eventual correction, increasing its potential severity. The other problem is, very few charts look good for low-risk entries.

We bought SOL today. And I'm keeping CLS in the holdings, because the negative close was only a cent in the last few minutes. If you sold today on the negative close, you did the right thing as technically it should've been sold. But it was a close call.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
MELI	17.39	19.62	+12.8%	17.99	N/A	Chart
CLS	3.24	3.73	+15.1%	3.36	Sell on a negative close	Chart
EGO	9.01	8.95	-0.6%	8.19	Consider selling on a close < 8.49	Chart
VIVO	18.22	17.95	-1.5%	17.32	N/A	Chart
SOL	4.01	3.98	-0.7%	3.59	N/A	Chart

Just one chart for tomorrow.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
HW (Headwaters)	3.86	3.39	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.

Trade Ideas for 04/02/09

Was today April Fool's Day or Groundhog Day? It seemed like today's price action was a repeat of yesterday's, with the exception of the last 30 minutes: S&P started in the 780s, climbed straight up to the 810s, in the last hour suffering a precipitous drop. The difference today was that the market fought back from the brink of collapse, and futures are currently soaring.

I thought yesterday's collapse may have foreshadowed a brutal C wave down, but that turned out not to have been the case. Tomorrow may be an even more volatile day, as the Financial Accounting Standards Board (FASB) meets to review the mark-to-market asset valuation rule. There's buying being done ahead of this news; and what happens afterward is anyone's guess. If it's a "buy the rumor, sell the news" type of event, then that C wave may indeed unfold. Or panic buying could ensue. Or the latter followed by the former! The most important price tomorrow is the closing price, and who knows what path will be taken on the way there.

No changes to our current holdings today. DUG gapped up on the open, and then proceeded to fall into the range of our buy price, then proceeded to trip the sell-stop. Technically, the gap up was too high (over 2% greater than the buy price) and invalidated the buy signal.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
MELI	17.39	18.53	+6.5%	16.86	Sell on a negative close	Chart
CLS	3.24	3.74	+15.4%	3.36	Sell on a negative close	Chart
EGO	9.01	9.14	+1.4%	8.19	Consider selling on a close < 8.62	Chart
VIVO	18.22	18.10	-0.6%	17.32	N/A	Chart

A varied bunch of ideas for tomorrow, to reflect the numerous possibilities. I personally would wait until the market has reacted to any mark-to-market news before taking on new positions. There's no set time, but the announcement could occur as early as the market open.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
SOL (ReneSola)	4.01	3.65	3.19	Chart
CEF (Central Fund of Canada)	12.12	11.94	11.78	Chart
RWM (Short Russell 2000)	74.36	70.23	N/A	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.