Lumber – Weekly Chart of Decline

Apr 29, 2007: 2:09 AM CST

Lumber (future) has experienced a rapid and sustained decline, as evidenced by its weekly chart.

lumber.jpg

We are seeing weekly momentum buy divergences that indicate a slowing of the selling pressure, but the trend remains in tact until disconfirmed by a higher high and a higher low.

Until then, odds favor successful trades on the short side, with tight stops because of the developing divergences.

UPDATE:  February 9th, 2008

A reader requested an update to this chart, which terminated April 29, 2007.

My call was on, in that ‘odds favored the short side’, as lumber made new recent lows at $217.

Here is the weekly chart:

lb08.png

By the way, the divergences I referenced did resolve with a quick ‘short squeeze’ almost after I posted the article.  The ‘short squeeze’ is represented by the green bars which soon turned back to red as the trend resumed.

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Shock Volatility in Silver

Apr 29, 2007: 2:02 AM CST

In Wall Street, there’s an old saying, “The Market takes the escalator (or stairs) up and the elevator down!”  This statement is exemplified by the action in the Silver futures contract.

We have a slight and creeping uptrend followed by a quick shake-out downthrust to cause all those who bought in to be underwater instantly.  This happened not once, not twice, but three times since last July!

silver-apr-28.jpg

Notice the grinding upwards action that was completely erased within two or three days.  Absolutely insane.

Also, this is one of those instances where stops may not protect you because the move was so swift and violent to the downside each time.

Commodities and futures may be able to make you lots of money quickly, but their volatility issues are probably best left to the professionals.

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Sector and Industry Strength and Weakness with Stock Ideas- April 28th

Apr 28, 2007: 9:30 AM CST

Here is a chart of the most recent update concerning the last three months (ranking) Industry strength and weakness, as viewed from Prophet.net:

Top Industries

top-industries.jpg

  • Money is flowing into Oil and Gas equipment, as well as Foreign Telecom Services (as evidenced from the right to left ‘red to green’ flow).
  • Opportunities for continued growth may lie here.
  • Uptrends to examine (Oil and Gas): BTJ, CAM, DRQ, FTI, GMRK
  • Uptrends to examine (Foreign Telecom): MICC
  • Metals Fabrication has stayed strongest over the last 3 months, andcontinues to be the #1 industry
  • Opportunities for continued growth may be decreasing soon (given its dominance at the top)
  • Uptrends to examine (Metals Fab): PCP, RS, X, RYI

Bottom Industries:

bottom-industries.jpg

  • Money is flowing out of Cigarettes in a meaningful flow. This is in part by a recent large gap in MO (Altria), a Dow Component
  • Residential Construction has been weak for the last three months.
  • Downtrends to examine (Res. Const): LEN, MTH, KBH, CTX

Here is a graph of the most recent Sector Rotation (30 days) from StockCharts.com:

sector-r.jpg

  • Energy dominated the last month, marking a 6% increase. That’s generally bad for the economy and the consumer.
  • Healthcare and Utilities were the only two sectors to be positive the last 30 market days
  • This bodes poorly for the overall economy, and suggests that “big money” is being more defensive with their posturing
  • This suggests we are in a Late Bull/Early Bear environment, yet the major indexes do not confirm this

Keep checking back, as I will be adding weekend sector and industry analysis, in addition to my daily postings.

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Daily Chart View – CME

Apr 26, 2007: 9:09 PM CST

I highlighted Chicago Mercantile Exchange (CME) here as a study on trendlines and support. It is a ‘very expensive’ stock, and one I recommend playing options (particularly credit spreads) if you desire to trade this stock that is priced higher than monster Google (GOOG).

cme-apr-26.jpg

Of quick note:

  • CME recently broke its triangle consolidation to the downside
  • All oscillators are oversold (in chart)
  • Support zone is likely at the 200 period moving average
  • Should the MA break, then support may be found at the price low highlighted with a horizontal line
  • Should price break significantly here, all bets are off (thus, stops should be placed here)
  • A credit spread (bull put credit spread) could be entered close to the market to take advantage of the support zone
  • A debit spread (bull call spread) could be entered also to play for the bounce
  • Of course, you could buy long calls here… but the edge typically comes from selling premium, especially with volatile stocks

These are just a few observations, and I hope to challenge your thinking to step outside ‘pure stock’ trading and explore other possibilities.

Either way, it’s still an odds game and there are various ways to ‘play the odds’ with options in addition to stock transactions.

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Link: TraderFeed – Overcoming Anxiety

Apr 26, 2007: 8:39 PM CST

Dr. Steenbarger recently posted two writings/links on how to overcome performance anxiety. After offering previous comments from readers who sent in their own techniques to overcome anxiety in trading, he listed two techniques from his own research/practice, and an additional post on a Solution Focused Linkfest.

He writes that self-hypnosis (with a simple, easy to perform example) and Reprogramming through Biofeedback (more complicated) as his two favorite methods.

Also, in the Linkfest, he offers the first chapter of his book to read which contains a compelling personal story and grabs the reader’s attention through concrete examples and situations. It is absolutely enough to entice you to purchase the full book, which I also strongly recommend to traders caught in emotional perils, or those who want to understand their own psychology and how it relates to the markets.

I check Dr. Steenbarger’s sites daily, and he has never ceased to disappoint me with his wealth of information and resources and links to outside sources.

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