Monday, January 9, 2012

Sleepy Monday.

January seasonality is being played out true to textbook. And the earning season is upon us. So while the top is in, do not expect major downside. There will be correction alright but I do not think it will be very deep. Let us look at SPX chart from various time frames. The 1st one is the daily chart.
The lines were drawn on January 4, when I closed my long position. Nothing has changed from that day.  SPX is in the same channel unable to break the 1282 level or exceed the October high. And Stochastic RSI is overbought for a while now.
Hourly SPX chart is clearly showing a symmetric triangle with a sloping trend line. And it will break soon. The 1st breakout is normally the false breakout. I expect SPX will make another attempt tomorrow to break the sloping trend line and turn down.
Five minute SPX chart clearly shows that it has made numerous attempts to break 1282 but failed every time.  As we are in the down cycle, I do not expect it to break tomorrow either. If anything another failed attempt will be the final push.

Today earning season kicked off with Alcoa. Without accounting hoodwinking, it actually made a loss of $34 mil. Or 3 cents per share.  The loss from continuing operations was $193 million, or 18 cents per share, compared with a profit of $172 million, or 15 cents per share in the same quarter of 2010. And it converted the loss into profit with some ingenious accounting entry. That too after reporting higher revenue. How long it takes the market to find out the scam and sell? Alcoa actually burned cash in Q4.

Something happened in the Tech. sector which I have not been able to figure out yet. Google sold off hard and closed down over 4 %. Apple also sold off although not much. QQQ is down but Compq is positive. Overall the NYSE volume was much lower than even December. There is a huge price volume negative divergence for last many sessions and it would count at some point. Plus there are over $ 140 billion bond sale scheduled this week.Commodity sector was weak despite US $ not doing much.
I am short from last Thursday (January 5) close. I mentioned in my Friday post ( ) that my heart is not into shorting this cycle. I will close all my short position by close of 12th January.  And then I plan to spend the rest of January on the side line. My models are telling me that January is going to be a very rough sea without any clear direction. It is going to be so choppy that it will make even a sailor seasick. On one hand January effect and earning season will try to keep the market elevated. On the other hand FX and TA will try to bring the market down.  POMO by the Fed and bond sales by NY Fed will add to this choppiness.  So after I have closed this short position, I better be market neutral.  However I still expect some correction in the next few days.

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