As I mentioned in the last market health blog post, the market has turned to the bearish side and I have two videos for you taking a look at this important index.  One video is from me, taking a look at all the important support and resistance levels on the weekly, daily and hourly time frames of the SPY (S&P tracking ETF) and the other is from Adam Hewison of Market Club taking a look at the S&P 500.  He highlights the fibonacci retracement as well as his proprietary trade triangle technology to determine how to play this market in the coming weeks.  We both come to the same conclusion.

Click the image to view Adam’s video

Click the image to view my video

The following was a note sent to my premium members tonight and wanted to pass it along to my blog readers: 

It’s safe to say the bulls have run out of gas.  It’s always interesting how the market begins to show signs of deterioration in certain leaders and sectors before the big plunge takes place.  Over the past couple weeks, we witnessed the China plays begin to crack.. it began with the high flying water plays, moved to the solar names and today it was the wind energy stocks.  In hindsight, I regret a bit not taking more off the table in the China names.  I thought increasing the hedge with FXP would be enough.. not quite enough.  I still have a longer term view of these stocks and they will all benefit big time as China pours billions into green energy.  However, I may look to ease up if I can get some decent bounces back to resistance levels. 

As you know, I have been increasing overall short exposure in the past week as those distribution days began to pile up.  Today was the fourth in less than two weeks which culminated in the Dow taking out key support levels of the 50 day moving average and the upward trend off the March lows.  Today was the most significant day of selling I’ve seen since the end of October.  I certainly thought the market was topping out then, so I could certainly be wrong again, but when I see this kind of distribution I will play accordingly and adjust if I’m proven wrong.  Along with the Dow taking out the 50 day moving average with heavy volume, the S&P has taken out an important level of support of the upward trend line off the July lows.  It still has support of its 50 day moving average, but downward momentum would indicate that it probably wants to test that 1100 level in the coming days. 

So, in light of the moves of the past two days, the strategy of the portfolio has shifted and that is to get more aggressive with short exposure into the rallies.

You can see the Dow taking out minor support around 10500 today and major support of the 50 day moving average with heavy sell volume.  More Dow analysis here.

The S&P is still holding its 50 day moving average but probably not for long considering today’s downside momentum.  More analysis of the S&P here.

In 2008 I expanded the offerings of Self Investors LLC to include a portal focused on green energy stocks which is quickly becoming one of the top portals for all your green stocks information.  It includes breaking news, republished content from other authority sites in the green stocks space, tracking, the latest twitter posts, videos and featured content.  I have plans more improvements and features this year!

There isn’t a direct correlation between green stocks and oil prices, but some correlation can’t be denied.  If oil prices continue to rise back above the $100/barrel level or even just stay where they are, then alternative sources of energy become much more attractive and the stocks of companies in wind, solar, electric cars, the smart grid, etc benefit big time.  It’s safe to say that in the coming decades, the prices of commodities will continue to rise as supplies diminish and demand skyrockets. 

For this reason, I have put together another portal for investors called Oil ETF Central which focuses on oil prices and oil ETF’s.  It’s still very much in beta and literally days old, so much work remains, but I think it’s useful enough to present to the public   Feel free to contact me with suggestions to help make this portal an even better source of information for oil ETFs.  Your feedback is always welcome and much appreciated. 

China stocks have been one of the best places to profit for traders and longer term investors alike over the past several years and that continues today.  Granted, the risk increases with each passing day as the market continues to push higher off the March lows, but the longer term opportunities are here to stay.  The longer term investor may just want to practice a little patience before diving in after such a torrid run

I like to focus on niches of the China market and certainly my focus in the coming years will be on companies in the green energy space, which would include everything from solar, to wind, to electric cars to water conservation and treatment.  China is leading the way in alternative energy technology and will continue to pour billions into it to ensure they remain on top.  Back in June, I focused on the China water industry with a look at Duoyuan Global Water (DGW) ahead of its IPO.   It’s just one of a few China water plays that have been on fire in recent months, with gains of 100 – 300%.  For news, analysis and tracking of all the China alternative energy play, you might like to have a look at a new site I launched last year called Green Stocks Central.

Today, I shift gears a bit and focus on the China auto industry which has seen tremendous growth over the past year. 

The headlines speak for themselves…

China Keeps Small-Car Sales Tax Low To Spur Growth (12.11.09, Inside Line)
Chinese Passenger Car Sales Rise 98% In November (12.9.09, WSJ)
BMW, Volkswagen’s Audi Sales Rise as Chinese Car Market Doubles (12.8.09, Bloomberg)
Chinese Auto Industry Continues To Grow (11.24.09, BBC)

It’s safe to say that while the auto market here in the US remains dismal (if you throw out the temporary spike from Cash For Clunkers), demand for autos in China remains red hot due to a robust economy, government stimulus and a growing middle class.  In fact, this year China becomes the largest car market in the world, outpacing the US by a few million vehicles sold.  The 45% growth in 2009 China auto sales probably isn’t sustainable, but expect solid growth of 10 – 15% in 2010 as the rural to urban shift in China continues and government incentive remains.

So to how to profit from this growth?  While the big global auto manufacturers are profiting in China, it’s not going to make enough of an impact to send the stocks soaring.  Whether I’m looking to invest in smaller niches like water scarcity, the smart grid or China auto growth, I want the pure plays that are off the radar of Wall St. and the general investing public.  Preferably, I also want to see profitability and decent growth, not to mention a bullish stock chart.  China Auto Logistics  (CALI) meets all the requirements. 

China Auto Logistics (CALI) is one of China’s top sellers of luxury imported cars as well as one of the country’s leading developers of websites for buyers and sellers of imported and domestic automobiles. It is also China’s leading “one stop” provider of logistical services and financing to imported car dealers nationwide. The Company has made the strategic decision to de-emphasize imported auto unit sales in favor of expanding its new, highly profitable domestic auto websites which are accessible through its national website, www.at160.com, launched in May 2009. Its subscription and advertising based www.at188.com is the number one site for imported car dealers and consumers. Already contributing significantly to profits, the Company believes further expansion of its websites, including the addition of new web-based auto-related services, will drive future growth.

You might be asking why I’m not highlighting China Automotive Systems (CAAS), China Yuchai (CYD) or Kandi Technologies (KNDI).  Those are great plays on the China auto industry as well, but all three are too extended at this time.  I chose CALI because it’s a bit more off the radar and hasn’t yet seen a big run in its stock.   On the fundamentals side, this isn’t a company that is exhibiting extraordinary growth and considering the growth in the China auto market this year, the profit growth has been disappointing.  However, estimates do call for a nearly 50% rise in profits in 2010 and the company announced last week that its auto site www.at160.com (couldn’t they come up with a better name?) is now one of the top 100 sites in China and the 3rd most popular auto related website.  Considering the company is increasingly focused on its web business, this is a positive development.

CEO Tong Shiping commented, “”The growth in popularity of the Company’s websites also is being reflected in the Company’s revenues from website advertising and subscriptions. At the end of November, the number of subscribers or advertisers on the Company’s domestic auto sites exceeded 1,000.” He added, “I am particularly pleased that the Beijing site alone, which has been in existence for only four months, has developed 33 4S shops as paid subscribers leaving substantial opportunity to add many more of the 470 4S shops in the city.”

Here’s the CALI investor relations guy speaking to Fox Business about the China auto market

I don’t currently own shares of China Auto Logistics (CALI), but am looking for an entry signal.  That for me would occur on a breakout move above the 50 day moving average which is an area it has had trouble breaking above in the past month.  In the chart below, you see that the stock first offered an entry point when it broke out of consolidation in mid September above 4.25 and ran up a quick 50% in just a few days.  Since then, it has been digesting those gains in a very bullish manner, finding support along the 200 day moving average and looking poised to run again.  I’m just looking for price and volume to spike above that 50 day moving average in blue above about 4.75.  Check out MarketClub for additional chart analysis of CALI

Stay tuned for another off the radar China auto stock.. I’ll highlight the next one soon.

Hey all, I just put up an outline page of the new INO email stock market trading course that I highly recommend.  I’ve gone through it myself and there are some great advanced tips, not just the stock market basics.  It’s a 10 day course that covers everything from trader discipline to gaps, to reliable chart patterns, to stochastics to topping and bottoming signals.  Even if you’re experienced, it’s worth a look.  Maybe there are some indicators and patterns you hadn’t considered.  You have nothing to lose by checking it out.. it doesn’t cost a dime.  Get a course syllabus and sign up for the stock market course here.

I wanted to post an email I sent out to my members last night, going over the case for a bull vs bear market.  Comments are welcome and appreciated!

What a yo yo couple of weeks it’s been with the market bouncing around in a fairly tight trading range.  The market doesn’t know what it wants to do up here and that makes it difficult for a trader to know what to do as well.  I still think the best strategy up here for most people is to move more to cash, lock in gains quickly if your playing momentum stocks and stick to dividend payers if you’re planning on holding for a longer time period.

The case could certainly be made on the bullish and the bearish side, but in my opinion when you make the case for both, you have to give the advantage to the bearish side up here.  Let’s a take a look at both.

The Bull Case

- Market still trading up around the highs of the year despite quite a bit of bad news (ie the quick recovery off Dubai debt concern)

- entering a month that is historically a bullish time for the market

- liquidity, liquidity, liquidity.. this could really go under the bullish case and bearish case (are we creating another bubble fueled by excessive risk?)

- the recession is over! (ok, I say that with some sarcasm, because I don’t truly believe we’re out of the woods and I get sick of hearing the argument that the market will continue to move higher because the coast is now clear.  It isn’t and most of the good news has been built into this market now)

- there must be a few more points to make the bullish case, but I’m not coming up with them.  Send me your best bullish case and I’ll have a little something for you. 

The Bear Case

I think we’re all aware of the economic concerns out there such as inflation (down the road), rising unemployment, BIG government, rising taxes, etc, so I’ll just discuss the technicals for the bear case

- trouble at key resistance levels around Dow 10500, Naz 2200 and S&P 1100

- S&P and Dow hitting big resistance of the downward trend line off the 2007 highs (I’ll draw out these charts at the blog soon)

- volume continues to diminish to the upside

- Dow, Naz, S&P back into overbought territory on the weekly charts

- small caps are broken as revealed by the break down in the Russell 2000

- US dollar stabilizing as it hits big support of 2008 lows (a rally could derail the market)

- the financials failed at key resistance today as revealed by the XLF (high volume reversal at 50 day moving average)

What do you think? Have I missed anything?  Can you make a stronger case for the bull side?  I’d like to hear your opinion and I’ll publish the best responses over at my blog. 

As for the action today, we got some hefty selling there in the last few minutes of trading ahead of the jobs number in the morning.  Is that move forecasting an awful jobs number in the morning?   We’ll find out.  The rumor this morning was the White House knows the report and unemployment ticked up.  The White House denied the rumor and the market rallied a bit.  We’ll get the truth in the morning. 

The market just remains in a tight range right now with two straight days of failed break out moves, but still with lots of support below.  I’ll be keeping a close eye on the resistance levels of the highs of today and the support levels of the 50 day moving averages – at Dow 10000, S&P 1080 and Nasdaq 2100.

Adam Hewison of MarketClub just released a new video revealing his forex trading strategy using their proprietary trade triangle technology.  He basically uses a monthly chart to focus on longer term trends, entering and exiting when the trade triangle technology reveals a shift in the trend.  Highlighted in the video are the entry and exit points over the past eight years for the USD/CAD,   USD/NZD and EUR/USD..  What you’ll see is that focusing on the longer term trends is a good forex trading strategy. 

The forex markets are the biggest markets in the world and MarketClub not only covers all of them, but also covers them in real-time with pricing and charts. Learn from the video and post your comments at their blog!

Click the video to watch Adam’s long term forex strategy in action.

The government is pouring billions into the technology.  Cisco CEO John Chambers said it will be bigger than the internet.  The opportunity for investors is indeed BIG and now there’s a diversified way to play “it” – the smart grid revolution.

There are quite a few useless and overlapping ETF’s out there and this industry is in need of a major shakeout, but every once in awhile a great ETF comes along and the First Trust/Clean Edge Smart Grid ETF (GRID) is no exception.  The ETF aims to track the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index and is a modified market cap weighted index which includes companies that are primarily engaged in all components of the smart grid – from the meters, to the network, to energy storage to software. 

The fund aims to focus primarily on smart grid plays by weighting those companies deemed as smart grid “pure plays” much more (80%) than big companies with a fraction of their business in the smart grid arena (weighted at 20%).  For example, a company like Itron (ITRI) is going to comprise a much larger portion of the ETF than a GE would. 

:: >> Get More Analysis On the Smart Grid ETF (GRID) Here

The ETF is comprised of 29 companies, but here are the top 10 holdings.  Companies must have a minimum float adjusted market capitalization of $100 million and a 3 month avg daily dollar trading volume of $500K.

Other smart grid plays included are AEIS, COMV, DGII, ESE, BGC, GE, ITLN, ITC, MTZ, PIKE, SATC, VMI, WCC, ABB, CBE, JST, TLVT, SI, NGG

Here’s a prospectus of the Smart Grid ETF (GRID)

After just two days of trading, the Smart Grid ETF (GRID) offers plenty of liquidity, trading 200K shares today.  I’d imagine liquidity will continue to improve rapidly in the coming months for you short term traders out there.

Whatever credibility Dick Bove of Rochdale Securities has left can now be thrown out the window.  It won’t matter at CNBC or Fox Business though, because for some reason he’s considered a guru analyst in the financial sector.  Following Wells Fargo’s (WFC) earnings yesterday morning, he was on CNBC with the following comments before the market opened:

At the beginning of the segment he said Wells Fargo “has its loan losses under control” and that they “should be able to grow revenues by increasing loan volumes”.  At the 1:20 mark he said Wells Fargo was one of the three financial companies that “should do well in the market today and lift all financial stocks.”  To close out his thoughts on the financials, he called Wells Fargo a “standout”  with those earnings numbers.

Now fast forward a few hours later to about 30 minutes before the market close yesterday.  Bove issues a surprising Sell rating on Wells Fargo, downgrading the stock from Neutral.  This morning he was on Fox Business explaining his Sell rating.  Here are the highlights from his comments about Wells Fargo:

- not expanding its loan book
- margins on loans being sold going to come down
- big increase in loan losses through the beginning of next yeare
- unsustainable gains in their hedging portfolio
- will take about a year to get its position back where it should be

In response to the flip flop, Bove defended himself by saying he didn’t have all the results when he went on the air.  Then why are you making an analysis?!  Why not just say give me a few more minutes until I have all the facts.  It’s irresponsible and reckless behavior at best. 

With gold breaking out of a 1.5 year base in recent weeks, it’s certainly been the focus of much discussion once again.  How high will it go?  Are we about to enter a mania phase?  What’s the best way to play the sector?  I thought I’d enter the fray and tackle some of these questions, primarily from a technical perspective.  In this article I take a look at the SPDR Gold Trust ETF (GLD) in order to get an overview of where gold has been and where it might be headed.  In Part II, which I’ll post towards the middle of the week, I’ll take a look at a few gold stocks that I think represent a good leadership group.  That is, companies that are profitable and in some cases growing quickly. To close out the series, I’ll post another article later in the week or next weekend taking a look at several speculative gold plays based purely on momentum.  These are trades that carry considerable more risk and potentially much greater reward. 

With that, let’s jump into a couple charts of GLD which I think are quite revealing. 

The first one below is the shorter term chart showing two very bullish moves in September and then again here in October.  The first big move that really kicked off this rally in gold was the Sept 2nd breakout out of a bullish wedge formation.  After a short consolidation, it eventually broke out again, this time to a new all time high above that all important 100 level.  Note the big pick up in volume on the buy side which indicates quite a bit of conviction on the part of buyers.  I do think gold is a bit extended in the short term and probably needs to trade sideways or even pull back to 100 over the next few weeks.  That should be enough to clear the way for the next and possibly final leg up of this strong up trend. 

There are all kinds of estimates on how high gold will go.  It’s quite similar to what was happening in 2007 when the price of oil skyrocketed into the stratosphere.  My feeling is that there is certainly room to run in gold, but we are much closer to a big top in gold then another big run (like we saw over the past nine years).  In the chart below, I only show the move since 2005, but the big move in gold really began back in early 2001 when it was just $275/oz.  Despite what many of those selling gold products and trading services will tell you, it appears the move in gold is largely done. 

If you take a look at the quality of the base formations at the end of each leg up, what you’ll see is a significant increase in the depth and sloppiness of the base.  It reveals that an increasing number of people are watching and trading gold.  Just see how long it takes for a gold commercial to come up on any business channel!  When that happens, the mega move is largely over.  What I see happening is some kind of climactic run in gold over the course of a few months with  gains of 20 – 30%.  That’s not a number pulled out of a hat, but based on previous runs from previous bases.  Notice how the farther up you get into the rally, the returns diminish as the base quality deteriorates.  Take a look at any big move in a stock and you’ll see this similar pattern.  It’s reasonable to assume that the returns from this breakout will be less than what we saw with the 2007 breakout.. so somewhere around 20 – 30%.  If the price of gold gets into that 1200 – 1300/oz area I’d be looking for some major topping action!  A climax run in gold over the next few months followed by massive selling on the part of institutions may be the end of a nearly 10 year bull run in gold.   Get more gold analysis here