We broke our symmetrical triangle and closed below 800 that day…both were signs that a new leg down was going to begin. Let’s take a look at what has happened since:

Excuse all my trend-lines but as you can see we continued further down as expected. What surprised me however was that we couldn’t hold support at 750 (741 to be exact, a key support level). We did get a bounce on the 24th of February and I honestly thought we had formed a double bottom (a bullish formation) at that point but we didn’t! Instead of following through we broke below 741 breaking yet another key level. I must say I was very surprised to see this on Friday…I have been mentioning the “bearish pennant” in my last few posts as a possibility but come on, I did not want to see it happen!! I’m trying to be optimistic but Friday’s action forced me to short the markets yet again. I felt we were oversold but I had to short to hedge my two remaining longs and I’m glad I did!!!…cause what happened TODAY shocked me even more. We broke another major trend-line!!!! I do apologize for all the “!”s but how could you not be bearish with all those cracked support lines? We are in a primary downtrend and it seems to be worsening daily…please do yourself a favor and do some research on bear ETFs. Try either Horizons BetaPro ETFs or ProShares for a start.

Happy trading!…and don’t forget to check out HY Markets and all my other sponsors!! Thanks again to all those who have subscribed to my feed/newsletter, it means a lot!!!

Richard
richard[at]hedgeagainstspeculation.com

Today’s post is going to be a short one, but a post is better than no post, right? The markets are looking horrible, it is likely we will see further danger to the downside. A short relief rally tomorrow morning is possible but if we follow through and close below 800 on Wednesday that’s a sign of bad things to come. We’ve been getting lots of mixed reactions to news…in situations like these the overall trend trumps everything and the path of least resistance still continues to be lower. Today’s bearish action pretty much eliminated all bullish arguments…take a look at the S&P 500:

We broke out of our symmetrical triangle today. As mentioned before, a break below 825 would lead to much more downside. Other important support lines include 800 and 750. Today’s break below the 800 level could easily lead us to 750 in the coming days. If you haven’t read my previous post about a potential bearish pennant, you should! Cause it is looking more and more like one as the days pass. A push lower to 750 forms a double bottom…this may sound bad but really it isn’t…double bottoms are usually a reversal pattern. But for the time being, I’m going to stay away from picking bottoms…speculating bottoms is a losing game.

Happy trading!…and don’t forget to check out HY Markets and all my other sponsors!! Thanks again to all those who have subscribed to my feed/newsletter, it means a lot!!!

Richard
richard[at]hedgeagainstspeculation.com

So today is Monday, February the 9th and I’ve decided to blog while in the middle of the trading day…in fact I’m doing a few day-trades as we speak. As mentioned in my previous post, we are forming a symmetrical triangle.

This triangle can break to either side but the weekly charts tell me that we are more bullish than bearish. We haven’t gotten to our year’s highs yet, but it is looking much healthier. In fact the NASDAQ is up for the year! Buyers controlled all of Friday and I suspect they will do the same today. If we do infact break out of our symmetrical triangle, we will most likely slow down at 900. I suspect we will turn around at around 900-925 BUT if we pop through this mark the bulls are in full control. I will go as far as calling this a bottom if we do in fact pop through this important level.

But do we really have a symmetrical triangle or just a bearish pennant?!? Remember folks, the path of least resistance is still down. So what is a bearish pennant?…take a look at this picture:

A pennant is considered a bearish signal, indicating that the current downtrend may continue. The big picture indicates that we may such a pattern. After a strong volume decline on negative fundamentals, we’ve been getting weeks of narrowing price consolidation on weaker volume. This typically follows by a second sharp decline on strong volume. 

Keep these patterns in mind when you trade this week. I will add some charts later tonight to give you peeps a better picture of what is happening in the markets.

Richard
richard[at]hedgeagainstspeculation.com

The reason I trade the nearest out of the money option is because I want to leave myself room incase what I perceived to be a higher high is just a hitch in yet a larger movement. In this case, the 30 call would have given me just over $2 of reaction time should the stock move higher and I wish to hold onto my position. Plus, options near the money have the highest time value, which is what I am trying to lock in. The reason for selecting the nearest month is because time decay occurs at the highest rate in the final month of expiration. So not only will the option lose value as the stock declines, but it will lose value as the month wears on.

The major difference between a covered call and a debit spread creation is that in a covered call you own the stock where as in the spread you own a lower priced call. In the trade above I locked in a profit of $60 per option that can be deducted from the total price of the long position. This may not sound like much. If i bought 100 shares at the break out above 24 on 1/23/09, i would have spent roughly $2400. In effect I am reducing the total price to $2340 by the end of this trade. Conversely, if I had bought the $25 call upon the breakout, I would have spent about $2.50 per share, or $250 per contract. In this case, I would be significantly lowering the total per contract price of the initial call position (2.5-.6=1.9 and 2.5-1.9/2.5 = .24 or 24% reduction in total cost per long contract.) I have indicated with the big blue arrow where the call should have been sold, and indicated with the big red arrow where it should have been rebought to close the trade.
Be sure to check out my site at http://bulldodger.blogspot.com for other trade ideas and analysis.

Happy trading- Dylan

Ascending triangles typically occur in up trending stocks.  The price rises to a level of resistance (point A the chart).  At this point, sellers begin to take control.  These sellers may consist of bulls taking profits off the table as well as bears selling shares short.  Both combine to produce an excess of supply, causing the stock to turn down. The stock falls until buyers begin to step in, either bulls taking on a position or bears covering their shorts.  Either way, the new low is higher than the previous low (point B).  The change in excess supply to excess demand causes the stock to rotate back up.  As the stock nears the level of the previous high (point C), sell orders again cause the stock to turn.  The key is that the previous high is met but not exceeded.  This indicates an large sell order may have been placed at this level, as some strong force is obviously acting to repress price movement above this point.  This sell order may be a limit order placed sometime in the past.  And each time the level gets hit, some, but not all, of the sell order is gets exercised.  As the stock falls towards point D, rising momentum in the bulls causes a new lower low to occur and turns the stock’s movement from down to up.  This time, however, the sell order that was present at the previous high (points A and C) may be deminished to the point where it no longer has the size to deminish the upward momentum.  As a result, prices often explode through this level (point E).  The price target in such a formation is calculated by subtracting the value at point B from the value at point A, and then adding that difference to the price level that reacted as resistance for points A and C, or the breakout point at E.  Also, the amount of time that it will take for this target to be reached is roughly equivalent to the horizontal length of the ascending triangle.  Like all triangle and wedge formations, I think of Ascending triangles as being a build up of tension in the market that is reflected by the rising lows.  The conclusion of which can be a dramatic change in price.  
 

As an example of a successfully broken Ascending triangle, here is the stock EGOV.  This stock had been forming an ascending triangle over the past month, and today broke out, rising 10% from yesterday’s close, and about 8% from the resistance line.  Though I missed the train on this one, I may buy back in if it pulls back to the prior resistance level, which would now be acting as support.

An example of an Ascending triangle still in the process of forming is BTU.  The resistance level is somewhere in the $28 to $28.50 area.  The rising lower trendline illustrates the rising lower lows.  At some point this formation will break.  While it is not guaranteed that the bulls will win out, they are often favored in such a formation.  The conservative trader will take a position upon a breakout above resistance (say at 28.75).  With a price target of about $36, this still leaves plenty of room for profit.  More aggressive traders (like myself) will take the trade in anticipation of the breakout.  The trade off is that the aggressive trader accepts a lower probability of success for an increase in profit potential.  As long as I place my stops well, it’s a risk I am willing to take.

Be sure to check me out at http://bulldodger.blogspot.com .
Happy Trading- Dylan

On to the S&P 500…if you haven’t read my last two posts, you should. None of my trend-lines have changed…I’ve omitted a few lines in my next chart to make things clearer, but my previous lines are just as important…so please refer back to them.

Can anyone tell me what pattern is developing? Refer to the descending red and ascending blue line…if you’re thinking a symmetrical triangle then you’re spot on! Symmetrical triangles can be characterized as areas of indecision. A break below the lower trend-line signals a move lower, while a break above the upper trend-line signals a move upward:

Now with that said, we are sitting right above 825…as I said in my last post, 825 is acting as support so any close above 825 is still bullish. After this week’s past activity, I would be cautiously bullish. However, a break…or more importantly a CLOSE below 825 is a bearish signal. It is very important that we close below 825 before going bearish, don’t be greedy and short before confirmation, if you do you could easily get stuck on the wrong side of the fence.

As mentioned above, I would only be cautiously bullish this coming week. This symmetrical triangle formation is favoring the bears. Further, we are clearly still in a bear market…markets like these have unlimited downside, anything can happen in regards to downside projection.

Remember this chart? I posted this Dow chart in my last article. The S&P is clearly much more bullish than the Dow…Friday’s close confirms this. We closed below the ascending blue line and this my friends is dangerous! Again, if we close below 825…preferably 820 on the S&P I will go bearish. Shorting the vulnerable Russel 2000 may be one of my moves. ETFs like TWM or TZA are possibilities.

Happy trading!…and please tell your friends and family about H.A.S., help us spread the word!!

Richard
richard[at]hedgeagainstspeculation.com

But before I continue on with a market update I should thank all those who have continued to support H.A.S., so thanks once again for all your kind comments and emails.

Now on to the markets…let me refresh your memory and re-post Jan 22’s chart:

On Jan 22nd we were clearly under the second blue line. Today the S&P 500 (sitting at 845) clearly closed above this blue line. This my friends is very bullish, if we continue to stay above this blue line we should be testing resistance at 925 fairly soon. But wait…let us take a look at the Dow:

Here we are still within the two down blue lines. The shorter term time frame shows that we are still improving but a break above the upper blue line needs to happen. What’s positive though is that we have a higher swing low…this is indicated by my blue line trending up.

Here’s a little reminder though…the Federal reserve meeting is tomorrow, so be very careful with your trades. I have a feeling that this meeting may act as our catalyst for the Dow to break resistance. Further rumor has it that there is a lot of insider trading going on right now…CEO’s and Directors are buying into their companies again, let that be a sign that tomorrow may potentially be a good up day. And I just got word from my friend Marco at Option Maestro that the financials are up big in after hours trading. There’s some news flowing around about what’s going to happen to banks etc…BAC, UYG, and FAS are all up around 10%. Keep all that in mind while you trade tomorrow!

Richard
richard[at]hedgeagainstspeculation.com

On to the markets…the markets have been pretty uneventful since I last posted. Clearly, the larger picture is still very bearish. Until we find a bottom, all trades to the long side should be kept to daily time-frames. Like usual, let’s take a look at the S&P 500:

All the trend-lines I drew are significant ones…let’s start with the support lines. Our nearest support is a falling line, if we break below 800 we should fall fast and hard towards 775. A fearful fall to 750 could easily happen at that time…I use the term “fearful” because any break below 750 would be a lethal one, 750 is our last defense! Take a trip back to late November…we could’ve easily fell to 500 two months ago.

On the bright side, if we break above 840 we should see a bull run hitting our heads at the MA(50) or my green resistance line. This would be a nice run up, and something I foresee happening. However, it is more likely that we stay within the two falling blue lines and move sideways for the next week or so.

Now you’re probably wondering…when are we ever going to see a bottom? Well we’ve been close to one, but not until we get a double bottom will any chance of a bottom arise. I’ve said that many times, but a true bottom is never “V” shaped, bloggers have been calling bottoms all year round…remember back in November 20th or so when peeps were calling that a  bottom?…well thumbs up to them for finally picking a short-term bottom but a true bottom is never shaped like a “V”.

So let’s take another look at my chart and play out a few scenarios:

1. We will not break through 840 and simply head towards 750. A sign that this may happen would be if we close below today’s low TOMORROW! We may be heading for another leg down if this happens. This may look bearish but it would act as the quickest reversal scenario for the S&P. Long term bulls should be loving scenario #1.

2. We break through 840 and head towards 925…from here we will get some sort of panic selling causing us to retest our 750 lows. From here we will start to recover, this recovering will take longer…it may take us till September before anything reverses.

Those are the two scenarios I foresee…I will let the markets play out and keep you all posted if anything changes. I do apologize for the lack of posts in the past month, and I do appreciate those who still come to my website even with the lack of posts…I was plesently surprised to see 250+ clicks/day without any new articles. Oh, and if anyone is interested in doing some guest posts for me, please let me know…HAPPY TRADING!

Richard
richard[at]hedgeagainstspeculation.com

Here’s a chart of the S&P 500 after Friday’s action:

As you can tell, the S&P is in a consolidation pattern. It’s taking a breather before another move to the up or downside. An upward move is more likely though…take a look at these two candlesticks…which candlestick pattern did we get on Friday?

If your answer is “hammer” than you are absolutely correct! This is a reversal pattern that is often seen in a downtrend - it indicates that a bullish move is in the making. On Friday, we headed towards support at 850 and shot right back up!! I can’t say we’re out of a bear market just yet (it would be wrong to say so seeing as the path of least resistance is still down) but there is a lot of indecision in the markets, this indecision and further consolidation could result in a true reversal.

Note: I’m out of all my shorts, I am long ABX, su.to, V, & SBUX. 

That’s all I have for today, but I’d like to make a special thanks for all those who are still following H.A.S.  A stumbled upon this blog review that was done many months back, thought I’d share it with you all…

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Hedge Against Speculation is a market advice blog written by Richard.

What is this blog about?

I couldn’t sum up the theme of this blog better than the blog itself so:

The goal of this blog is to help traders become responsible traders. Hence the title “Hedge Against Speculation”. Don`t take unnecessary risks in the market, use the information we provide you to hedge yourself against any risk in the markets. If you`re unsure as to where the markets are heading, don`t guess. Engaging in a course of reasoning based on inconclusive evidence are for amateurs, be a responsible trader and wait for opportunities. I don`t want to see any of my readers lose money in the markets

-Hedge Against Speculation

Content:

I read the first few posts of this blog and to be honest, to me they don’t make sense to someone like me who has no interest in markets or investing. Nonetheless, I can see that the posts are useful and full of meaningful content. The inclusion of graphs show that time is being spent in preparing the content of this blog for this full credit must go to the writers. The Offers and Contest sections of the blog are definately worth checking out.

Layout:

This blog has a personalized theme which fits in well. The header is excellent in my opinion and the advertisements fit in well and are un-obtrusive. However the best feature for me are the images after every post:

These provide a nice touch to the blog.

Overall, an excellent blog. The fact that it gets 6000 page views per month is no joke and is testiment to the quality of the posting on this site. So, all that’s left for me to say is, check it out!!!!

This entry was posted on April 29, 2008 at 6:15 pm and is filed under Blogging, Reviews: Websites/Blogs. Tagged: blog, marketing, review. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

As mentioned in my previous post, a descending triangle is a bearish formation. If you haven’t studied this pattern yet, make sure you do or read my previous post. Breaking support should lead us straight to 800 (red line) in the S&P but there is major support dating back to year 2003 at those levels. If we were to break those levels and even break below 760 (maroon line) then support won’t be seen till 500, which is a long ways down!

Hear me out…everyone who has called a bottom this past month is again wrong! I say it every time, but we’re still in a downtrend, the path of least resistance is clearly down. The fear indicator, VIX, was up 10% today…so fear is definitely in the markets. It may be fair to call a bottom at 800…but again, calling bottoms are for amateurs…here at Hedge Against Speculation, I won’t be able to call a bottom for you, but I could help you position yourself in the best trades possible by using technical analysis.

Note: I am still in EEV, I have a stop loss at $111.03…I will most likely be moving this safety net up as tomorrow progresses because we might find support at 800 as mentioned. Further, I didn’t indicate it in my chart, but the MACD is stepping up, this typically indicates a reversal. If we were to reverse at 800, you must keep in mind that the overall trend is down. We definitely won’t see a bull market like we did starting in 2001…with this credit crisis, companies will have a harder time borrowing money…which leads to less cash flow…which leads to slower growth.

Richard
richard[at]hedgeagainstspeculation.com