Monthly Intraday Charts for SPY and SSEC: 2010-12

This is a monthly series of intra-day charts for S&P 500 (SPX) and Shanghai Index (SSEC)

SPX

SSEC

Netflix (NFLX) chart analysis

Similar to BIDU, NFLX experienced an enormous run-up in the last 20 months.  The chart below illustrates possible timing and price level scenario of this round of correction.

Below is a close up of NFLX chart with shorter time frame

Baidu (BIDU) chart update

This is an imaginative scenario of BIDU's next 3 months price action. BIDU's recently formed downtrend (red line) meets the primary up trend line (pink) at 38.2% Fibonacci retracement level at $75 in mid-March which in this scenario is the price target of this round of correction.

Hang Seng Index (HSI), Xinhua China 25 ETF (FXI) and Shanghai (SSEC) chart analysis

FXI is right now sitting on a 20 month trend line at $42.67

Actually FXI tracks Hang Seng Index (HSI) pretty well, so you can analyze HSI to understand FXI.  The chart below doesn't reflect most recent price move of HSI to 22900 level which is around 38.2% retracement level of its most recent rally.  However, HSI still has room to drop to reach its 20 month up trend line as FXI did today.  It's at 22555 level which is 1.5% - 2% lower than current level.

After my last post, Shanghai index has broken the resistance at 2850 level from the recent consolidation at, this bodes well for FXI and Hang Seng.  It is now going back to retest the 2850 level as support.

Cisco (CSCO) chart analysis

Cisco (CSCO) rallied 104% in 413 days from March 2009 to April 2010, then in 222 days it corrected to 38.2% Fibonacci level of its previous rally at $19 in early December, see chart below:

Using history as reference, CSCO rallied from $8 to $29 in 479 days from Oct. 2002 to Jan. 2004, then it also corrected to 38.2% Fibonacci level of that rally at $16.83 before it spent another 400 days to more than double its price to $34.  If history will repeat itself, CSCO has reached bottom of its bull market correction and will reach $38 in early 2012.  These are very bold and you can say imaginative predictions, please don't base your decision on them, but rather focus on day-to-day price action.

Baidu (BIDU) chart update

BIDU price gained over 1000% in 700 days from Dec 2008 to Nov 2010, then after about 2 months of consolidation, it is resolving to the downside.  The chart below was as of 12pm today, it shows that Baidu (BIDU) dipped below the 2 month upward support line (blue dash line). 2 additional up trend lines will provide potential support in the near and intermediate future: the red line at around $95 as of now, if red line is taken out by sellers, the green line will provide support at around $70. 

If we look at Google (GOOG) between 2004 and 2006, another leading search engine stock, its price increased almost 400% from August 2004 to Jan 2006, then it corrected 30% in a matter of 1.5 months before resuming its up trend.  The correction brought GOOG back to the blue trend line which increases $50 every 3.5 months.  In comparison, BIDU's green trend line increases $10 every 3.5 months, and its red trend line increases $10 every 2 months. 

To provide longer term reference using GOOG's history, the chart below shows GOOG's price between Jan 2006 and Dec 2007.  After the 30% correction, GOOG price spent another 400 days moving up along its blue trend line before the final leg up from Aug 2007 to Nov 2007 which deviated from the blue trend line.

GOOG's price between Aug 2004 and Aug. 2007

So using GOOG's history as a reference, BIDU's recent peak is not the end of its bull run, but rather an intermediate one.  So the question is which trend line will hold in this correction?  If the red trend line will hold, it means that when the correction is over, BIDU price will increase $60 to at least $155 level in a year which is not entirely impossible.  However, BIDU's P/E ratio is kind of high at 83.  GOOG's early 2006 correction marked the start of GOOG's P/E ratio drop, before the correction it's at 96, 12 months after, it's in 30's.  If we expect the similar things to happen on BIDU, then the more likely trend line to hold is the green one rather than the red one.  But the on-going price actions should be focused on as the major clue.

Update: Ouch, BIDU closed today at $100.19, it dropped over 5% in 4 hours of afternoon trading.

Shanghai Index (SSEC) chart analysis

Since the early July low, Shanghai index rallied ~800 points or 33% and then corrected ~400 points in matter of 5 months.  The index has spent last week consolidating in the tip of triangle shown in the chart below.

Interestingly, SSEC experienced almost identical rally and correction from Nov 2008 to March 2009, 800 points rally followed by 400 points correction.  If history repeats itself, we should expect upside breakout in very short term, and an 1400 points rally will ensue.  However, don't jump to that conclusion quickly, as the situation are quite different between March 2009 and now.  In March 2009, the S&P 500 was at 667, NASDAQ was at 1268, VIX index was at 50 level; right now, S&P is more than 80% higher, NASDAQ more than 100% higher, and VIX index is at 18 level. 

Investment community likes to take Shanghai Index as leading indicator nowadays, however, it's likely that Shanghai could take US stock market as leading indicator as well.  So it's possible that history will repeat itself, but I would be very cautious to long equities right now.

Baidu (BIDU) chart analysis

Shares of BIDU is again forming a triangle, as the downward tending 13 DMA presses against 50 DMA, and bulls work hard to keep the stock above 50 DMA.  The breakout of this triangle should be followed no matter what direction it is.

Silver ETF (SLV) chart analysis

SLV is right now at upper end of its 2-year trading channel, with dollar rebounding from early November lows, SLV's downside potential is more than upside ones.

S&P 500 and NASDAQ chart update

S&P 500 and NASDAQ found support at May reaction high, then rebounded to 50% and 61.8% fib level, and now is bouncing back down.

S&P 500

NASDAQ

If 500 broke down 1170 level, then short term target would be 1120-1130 area and 2328 for NASDAQ

Monthly Intraday Charts for SPY and SSEC: 2010-11

This is a monthly series of intra-day charts for S&P 500 Spider ETF (SPY) and Shanghai

SPY

 Shanghai

US Dollar ETF (UUP) trend analysis

US Dollar confirmed its uptrend today by rebounding to 23 area.  Higher low pattern indicates a relatively steep up trend. $23.42, $23.88 and $24.35 are important Fib levels to watch going forward.

Timing of Entry to an Early Trend Change

When an intermediate term trend changes, it can either be indistinguishable from a corrective pull-back or happen so quickly that you don't have enough time to react to it.  In both cases, traders should pick entry spot very carefully in order to neither jump the gun nor be too late to the game.  When the trend change is evident to everyone, market usually will get ahead of itself as too many people are taking positions in the same direction.  You can identify this situation by monitoring the standard deviation between security prices and its trend line/moving averages.   In extreme situations when security prices are 1.5 - 2 standard deviations away from trend line, people are tempted to take positions driven by greed and herd mentality, which are exactly what a good trader should fight against.  Good trader should refrain from taking actions during this situation, only experienced traders would be able to take contrarian positions during this situation and be profitable.  This looks like a simple requirement, but successfully doing this requires two important capabilities:

• identify the new trend accurately as early as possible
• focus on just few important securities and follow their trend only, and not allow other "trends" to distract and affect decisions

Early Trends in S&P 500 and NASDAQ

S&P 500 is forming a very early stage down trend which is matching with April-June down trend in terms of slope almost 100%

NASDAQ is also forming early stage down trend which is more steep comparing with April-June down trend in terms of slope, however, the up trend from September to November (blue) is also steeper than the April - June up trend (red)

Market opinion

The market may have topped or is very close to a top for the following reasons / facts:

• AAII/Retail investors' bullish sentiment is at highest level since Jan 2007
• Spread between QQQQ or Nasdaq 100 and VXN is at highest levels in 4 years
• DJIA and S&P 500 has almost reached the price target of reverse head & shoulder formed during summer correction, while NASDAQ has already reached the price target
• High yield funds are turning negative significantly on Friday for the first time in about 4 months.  Junk bonds and high yield bonds have broke down the up trend from mid-May to early November.
• Bond fund (Pimco Total Return Fund) is breaking down the 20 month up trend since March 2009 (not quite sure what's the implication of this to equity market)
• Euro/Yen is at turned down at upper end of downward channel at around 1.15 and is now heading down (see chart below)

I would put extra focus on currencies in the next week.  On my radar screen: QID, QLD puts, VXX calls, BIDU puts

US 20+ year bond chart analysis

US 20+ year bond ETF (TLT) has been in bearish trend recently, its recent low almost touched 61.8% retracement level.

While TLT's reverse version of ETF, US 20+ year bond short ETF (TBT) was in bullish trend recently, its recent high almost touched 38.2% retracement level.

The implications are to expect some sideway trading for both TBT and TLT before the trend resumes.

US Dollar next step

Two possible scenarios:
Green one: to continue going up in short term and hit upper end of channel
Pink one: to go sideways in short term and hit upper end of channel
No matter which scenario happens, should keep close watch at what happens after US Dollar touches upper end of channel.

US Dollar ($USD) chart analysis

US Dollar broke down from three year support line last week, but is facing two support lines ahead: red at $74.3 and blue at $70.7, how the dollar react to these two lines especially the blue one will be crucial to the market direction in near and intermediate terms.

Financial Select ETF (XLF) chart analysis

Even though XLF broke out last week, it is still trading in a channel which is actually slightly downward tilted.  In the near term,  no significant resistance exists upside until level $16.7-$16.8 (red circle).  Last time, when XLF broke out $15 resistance in early March, it ascended to top of the channel rather swiftly in about a month, so the current forecast is XLF will reach $16.7 level by mid-December this time.

Maybe I am asking this question too early, but I can't help asking if XLF does touch ~$17 level, what will happen afterwards?  From the price volume action this time, the break of $15 level this time is accompanied with bigger volume than early March, indicating stronger commitment from buyers, which indicates stronger possibility of breaking $17 level to the upside this time.

XLF broke out and S&P 500 update

Today XLF broke out to the upside from 2-3 weeks of consolidation after Fed's QE2 announcement.  It looks that S&P 500 will break above April high by year end.  My previous prediction turned out to be incorrect.  Inflation trade is back.

Although big three indexes all broke out, as of Friday's close, they are close to price targets:
S&P closed at 1225, price target 1250
DJIA closed at 11444, price target 11700
NASDAQ closed at 2579, price target 2589

Monthly Intraday Charts for SPY and SSEC: 2010-10

This is a monthly series of intra-day charts for S&P 500 Spider ETF (SPY) and Shanghai

SPY

Shanghai

Leverage Short ETF 1 year relative performance

Comparing QID, SDS, VXX and FAZ 1 year relative performance in % terms: obviously VXX is the worst performer, SDS is the best, FAZ has been performing worse than QID, but recently, FAZ started to out-perform QID.

Intel (INTC) Chart Analysis

While the Stock Market is making new highs since early September, semiconductor and financials didn't participate.  The chart below shows Intel has been trending down in a series of lower highs and lower lows, with about a month in between each pivotal points.  Next important level is $16.27 because it's intersection between 38.2% retracement and lower trend line.

CAC and DAX chart analysis

DAX (German Index) broke out from ascending triangle to upside convincingly, price target in short term would be 7150

CAC (French Index) is testing upper end of its upward sloping triangle/wedge which is a little bearish.

Google (GOOG), Baidu (BIDU), Microsoft (MSFT) Chart Analysis

Google Inc. is breaking out the resistance dating back to early 2010 to the upside, the correction on GOOG seems to be over in early July when it retraced 50% of the gain.  As I write, GOOG rises 9% AH on positive Q3 earning news.  Technical speaking, GOOG could rise to 820 by August next year.

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Baidu.com Inc. is forming a a triangle, considering that Q3 earning release dated on 10/18, this triangle will be broken out on that date either to the upside or the downside.  The odds favors that BIDU will break out to the upside.

 

Microsoft Corp. is breaking out to the upside from 4 month triangle, in the short term, more upside should come in the intermediate term.

S&P 500 scenario for Q4 of 2010 update

Recent developments proved my previous prediction on S&P500 Q4 direction to be not accurate, so I adjusted my prediction here:

Two scenarios:

• A. S&P will reach 1190 in late October then drop
• B. S&P will reach 1250 in mid November then drop

The background for these two scenarios is: the market goes up in the near term due to drop of US Dollar and expectation of Fed's QE2, then after November Election, the expectation of a global slowdown in 2011 will dominate the market and will drive it down. 

Periodical Data Releases

This post compiles all periodically released economical and market data.

Economic Indicators

• Chicago Fed National Activity Index, monthly, toward the end of each month
• ECRI Weekly Leading Index, weekly, every Friday
• Bureau of Economic Analysis Gross Domestic Product, monthly,  last day of each month

Market Indicators

• AAII Individual Investor Sentiment Survey, weekly, every Thursday morning

Does Quantitative Easing Guarantee Higher Stock Prices?

In my opinion, stock market and economy are acting on its own schedule, driven by forceful under-current of cycles.  Human interventions, with Fed's actions included, are not causes but rather reactions to the forces of these cycles.  From this line of thinking, I wouldn't give too much hope on Fed's potential QE2 action inducing major stock market rallies.

Here is another article that looks at Japan's NIKKEI index and BoJ's QE actions, this could shed some light on this topic from historical perspective.

Amazon.com Inc. (AMZN) scenario and chart analysis

Amazon.com is forming an expanding triangle, which can either be a top or continuation pattern, but that's for long term direction of this stock, in the short term, AMZN is right at the upper trend line, the likely path is down to 95-100 level at around mid-December or early January 2011.

S&P 500 scenario for Q4 of 2010

With 50 DMA below 200 DMA, VIX at the tip of breaking out from 4 month falling wedge, and S&P 500 about to be rejected by upper end of trading range, here is one of the scenarios in my mind for the last quarter of 2010:

For bulls, bad news is S&P 500's 1220 level hit in late April is very likely the high of 2010, but the good news is that we are likely to see that level to be broken to the upside sometime in 2011.

Monthly Intraday Charts for SPY and SSEC

This is a monthly series of intra-day charts for S&P 500 Spider ETF (SPY) and Shanghai

SPY

SSEC

VIX and VXN chart update

Today CBOE S&P 500 Volatility Index (VIX) gave us a small but significant breakout of its 4 month falling wedge formation (A).  Last time in early August, a smaller falling wedge formation was broken out to the upside (B), and the subsequent rise turned out to be continuation of a larger 4 month falling wedge formation.  This confirms the bearish outlook of US equity markets in the short and intermediate term.

Similiarly, Nasdaq Volatility Index (VXN) is at the tip of its falling wedge formation, it's not yet broken out reflecting that relatively smaller fear investors have regarding Tech sector, and indicating Tech remains a strong sector in overall economy.

US Dollar intermediate forecast

It seems US Dollar will drop in the next month or so and will find support at around 76 area.

For long term US dollar analysis, see here

Baltic Dry and Crude Oil chart follow-ups

Almost exactly as I pointed out in previous post 3 weeks ago, BDI met resistance at 50% retracement level from mid-May high and early July low and is now heading down again.  BDI has been a reliable leading indicator for US equity markets, so this is a negative signal to bullish investors

It turned out one of the fibonacci lines I drew 3 weeks ago turned out to be resistance, Crude Oil first touched its 61.8% retracement between early August high and late August low, now it's heading down.

This happens at the same time when the AAII bullish sentiment reached 3 year highest level, and S&P 500 index stuck at the 1130 resistance level.  So the outlook of US stock market does not look pretty, and this echoes the poor economic data stream lately.

On the positive side, Bond has been in confirmed down trend, while EURO/JPY has been in up trend, as long as these trends continue, the outlook of US equity markets is promising. 

With all the above said, the outlook of US equity market is uncertain, with a slight higher downside risk in the near term and very high downside risk in the intermediate term.

S&P 500 chart analysis and scenarios

S&P 500 one year chart

As expected, S&P 500 surprised most of crowd by breaking the downward trend line to the upside today.  The question is how long and how high will this rally go?  A couple of scenarios:
1. The bull scenario or the green line, after testing the upper side of the trading range, the index breaks to the upside and retest April top
2. The bear scenario or the red line, after failing at the upper side of the trading range, the index breaks down to complete the giant almost 12 month head and shoulder top.
3. The more bearish scenario.  This scenario is not painted here, but under this scenario, the index touches 1000 and turns back down.

So which scenario will be true, the answer will be revealed soon, and the key is whether you can recognize the hint of the answer not very much but just a little sooner than the other people, that's what I think is the key to success of investing.