Facebook Couldn’t Stop The Market Downtrend

As you know I have been bearish for the U.S. stock market for quite some time. And as you recall the main reason I became skeptical about the U.S stock market back in March and April was the fact that the big emerging markets were underperforming the U.S. stock market.They continue to drive the stock market down, so I see further weakness ahead.

Now, another interesting event that occured in the past week or so, was the Facebook IPO. Many traders expected this IPO to bring back the excitement in the market and to stop the decline that had been going on from the beginning of May. Needless to say, Facebook not only did not help the overall market, but the stock declined sharply itself right from its very debut. The people that bougth 6 trading days ago can see their investment more than 20% down today. Two things are worth noting here:

1.) Facebook stock declined sharply since its debut because it was highly overvalued (the P/E ratio right now even after the drop is still 81!) but obviously not many people paid attention to that fact. Now, as they are losing money, they probably start to investigate the stock in more detail but obviously it is too late to do that. You should make your research and game plan before you make your trading decision!

2.) When the stock market is in downtrend, the sentiment is negative and everything is considered negative or a “selling opportunity”. As we have discussed many times before, nothing outside the market can change the prevailing market trend.

The other important thing that I’d like to point to you, is the sharp move up of the U.S. dollar vs EUR and GBP. While I still hold my bullish count on the weekly and monthly chart of EUR/USD, the recent strength of the USD vs GBP is a signal that the larger degree downtrend in GBP/USD pair has likely resumed. Pay attention to these two markets as they can move quite sharply from here…. USD/JPY was trading more quietly recently, but I expect U.S. dollar to start to appreciate their at some point as well.

Best Regards,

Alexander

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

The Most Important Lesson From the Current Sell-off in Stocks

Yesterday I recorded a video in which I discuss the Short-Term prospects before the U.S. stock market. If you haven’t seen it, you can follow this link:

http://www.youtube.com/watch?v=4iYxAc8J9q4&list=UU38iEelEfO1PcaKXa_5VSTA&index=1&feature=plcp

Now, the U.S. stock indices declined sharply last week and achieved my first downside targets (1300 in S&P500 and 2500 in Nasdaq 100). As you know I turned bearish on hourly chart in early May when S&P500 broke down below 1390 support and Nasdaq 100 broke down below 2695 level. S&P500 is now almost 100 pts lower and Nasdaq 100 is 200 points lower. Unfortunately in my weekend updates (the Short-Term updates on daily chart) I couldn’t capture these moves lower as the market did not rally toward my favored entry points. But enough about trading: everyone trades as they see it and in accordance with their rules.

Now, I’d like you to take a look at my last analysis on the weekly chart (from the end of April) because the recent price action has completely justified this analysis. For S&P500 you can find this analysis here:

http://www.trendrecognition.com/us-stock-indices/medium-term-outlook?in=5&op=3

Please, pay attention to this analysis and to the video above because they show exactly what I expect from here until the end of the year. The big bear market has not started yet in my opinion, but we have most likely seen the top of the market already. The lagging performance of the big emerging markets was one of the important factors that helped me anticipate in advance what happened. So my lesson from the market this year is that one has to pay attention to the performance of many international markets. When the markets that typically outperform the U.S. market start to underperform, this is a time to be cautious.

 

Best Regards,

Alexander

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

More on News Impact

The S&P500 market is called to open near the 1340 key support level. This level was major support in early March and then it provided support a few times last week. But the daily and hourly charts look quite negative now, so it appears the 1340 level will soon give way. Add to the negative chart of S&P500 the fact that Nasdaq 100 is leading on the way lower and that the emerging markets are even weaker. So, the odds do favor a breakdown here. Should this level give way, I would expect a panic sell-off. Why? Because many institutional buyers (mainly hedge funds) may decide to exit all at once. This can quickly bring losses twd 1300 and slightly below. If the bulls manage to somehow save the 1340 level, we may see a reaction rally back twd 1378, but eventually I believe the market will break the 1340 level.

If you remember last week I talked about the news impact using the Apple example. The Apple good earnings was a good example how the market would use a news-driven rally to sell-off. Last week there was another worth noting example: the Cisco Systems (CSCO) news. I encourage you to take a look a the CSCO daily chart. You will see that prior to last week there was a textbook Head and Shoulders’ pattern that had developed for the past 3-4 months. This topping pattern was broken on the downside, i.e. CSCO was already in downtrend. And then on Tuesday the CSCO CEO came out and said he didn’t like the trends he was seeing in the way his customers spent. That scared the shareholders and the stock declined sharply.In this case, the company’s news simply confirmed the new trend that had just started.

Best to your trading,

Alexander

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

News Impact

In my last publication I talked about how difficult the trading in S&P500 would likely become. The point was that I believed an important top was already in place but I expected the move down to be quite volatile and choppy. So far the market has behaved in that manner. S&P500 first declined to 1357, then rallied sharply to 1415 but failed below the previous top (from late March) and pulled back sharply again. Now it is sitting just abv the April low at 1357. Should it break below there, the focus will be on the 1340 level. And don’t forget,the correction phases usually take more time than the previous upmoves so I expect the pullback that started in late March 2012 top to last at least 4-5 months. So, while my outlook is bearish for the following months, the price action is likely to remain quite choppy with lots of strong rallies along the way. Reffer to my previous publication on how one can trade in such market.

Today, I’d like to talk more about the news impact. As you know I believe the news has no impact on the market price. There may be some initial impact once the news is released, but then the price action has nothing to do with the news interpretation. A typical example is the recent price action in Apple. As you know AAPL topped out in early April near 644 level and declined sharply to 555 when the earnings news was released. The news was extremely positive and the stock gapped up the next day and opened at 615. Soon after the open the stock reached as high as 618 and this level has never been since again since that day (April 25th). Despite the strong rally in the stock market at the end of April, the Apple stock underperformed in the following days. Eventually it brought the entire market down and closed last week at 565 – just a few bucks above its April low. This is a really good example of how one should not react based on the news. Should you have decided to bought AAPL after the earnings news (i.e. at 615) you wouldn’t have seen the prices ahead of you. As we have discussed many times, usually the excellent stock news are sold-off to the public that is buying the stock and guess who is selling – the smart money who have bought the stock much earlier. I learned that lesson long ago and decided never to base my decision on the companies’ news. You may make other mistakes, but this one should not be made. Unfortunately many people make this mistake over and over again even if they see clear evidence that this is not a good approach to the market. They just can’t help themselves to participate when there is an excitement on the market after a positive news. Don’t do this mistake!

Alexander

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Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

How To Trade During A Declining Market?

From my previous newsletters you know I warned that U.S. stock market might have topped out in late March.  Thouse of you that are regular readers of my web site know that I expect at some point to see a rather deep pullback, retracing at least 61.8% of the rise from mid-December 2011 low.

As you know, I was looking for two important levels in S&P500 to confirm this bearish Short-Term view: 1386 and 1340. The 1st level was taken out in early April and since then has acted more or less as resistance. So, the bears have the upper hand right now. In order to confirm that a larger-degree decline is under way (as suggested by my wave interpretation), a decline below 1340 must be seen. Since this level is really important, this is unlikely to happen immediately. And besides, the correction phases usually take more time than the previous upmoves so I expect the pullback that started from late March 2012 top to last at least 4-5 months. So, while my outlook is bearish for the following months, the price action is likely to remain quite choppy with lots of strong rallies along the way.

How can one trade such decline? First, as you know, trading a bear market is much tougher than trading a bull market because the volatility increases. Then, under the current conditions, the decline is expected to be very slow and choppy but finally it will likely exceed 10% from the recent peak in S&P500. To trade successfully in such environment, one has to be very patient. The best time to establish a short position is either in the very beginning or on one of the sharp rallies that is likely to occur. The other important thing is how one can manage their stops. Lowering the stops can be premature and this can take you out of the market easily. On the other hand, if you keep your stops too large, eventually you may suffer a loss even from a position that has been highly profitable at one time. In my own practice I have tried both to trade with tight stops and with stops that are far above the market to ensure that a couple of day oversold rally will not shake me out. The key to be successful is to have discipline in the approach that you have chosen, not to mix the two approaches mentioned above. Of course everything depends on your own preferences toward risk and money management, but I have found that during a decline it is better to keep the stops wide if you have confidence in the trade and if you have entered the trade in a correct way (i.e. in the very beginning of the decline or during one of the intervening oversold rallies).

As you know, I have favored the short side on both daily and hourly charts with stops that are currently well above the market price. As the decline progresses, I will, of course, adjust these stop levels, so you have to make sure you pay attention to my daily and weekly updates.

 

Best to your trading,

Alexander

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

Is That a Breakdown?

The U.S. stock market is trying to break lower this morning after the employment report last Friday suggested FED was unlikely to print more money immediately. Of course, we know that the employment report is just an excuse for today’s selling. The fact is, the uptrend from the mid-December low has not experienced any significant corrections for almost 4 months. And as you know, based on my wave intepretation, at some point I expect a rather deep pullback, retracing at least 61.8% of this rise. The chart below shows the most likely scenario for the next few months:

http://www.trendrecognition.com/images/stories/2012/indexes2012/sp500_st_20120408.gif
Once wave B is over, I will expect to see another rise twd the most recent highs.

Now, the main question is, if today’s selling is the beginning of wave B down or the upmove from the mid-December low is still intact. With the break below 1386 level, the chances have increased that a Short-Term top is in place. But firm and sustained trading below 1378 is needed to confirm this bearish view. The final confirmation will come with a move below 1340, but I do not expect this to happen immediately.

Nasdaq 100 however continues to outperform S&P500 which is a sign that the bulls are still alive. My experience tells me that when the market reverses its course, Nasdaq 100 will lead on the way lower. This market is still above its critical support at 2710, so the jury is still out.

Elsewhere, we have seen a pullback in crude oil for the past month or so, but the prices are now at the still rising 100-day moving average. So, another (most likely, final) surge higher cannot be ruled out here.

 

Best to your trading,

Alexander

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.

What’s Ahead For U.S. Dollar?

The U.S. dollar has fallen for the past week or so against almost all major currencies. However, the Short-Term and Medium-Term outlooks are quite different in different markets. For example, the U.S. dollar is currently weak against EUR and GBP and the daily charts suggest further weakness in the next couple of weeks. However, one should always keep in mind the larger-degree trend. Within that larger trend, GBP/USD is likely in wave (E) of a Triangle that strated back in early 2009. If that’s the case, the current rally of the British pound may be short-lived and will likely be followed by a huge move down for the cable. If you have forgotten my weekly chart of GBP/USD, here’s the scenario I am looking for:

http://www.trendrecognition.com/archives?view=ap&aid=4489

The weekly chart of EUR/USD is not that bearish right now, but it also suggests weakness going forward (which means dollar strenght). But the immediate trend (on hourly chart) is higher for the single currency.

And the most bullish for the U.S. dollar appears to be the weekly chart of USD/JPY. It seems to me USD has already bottommed in this market and a new long-term uptrend has already strated. Over the weekend I recorded a video about the Short-Term and Medium-Term prospects before this market. If you haven’t seen it already, I encourage you to take a look at it:

http://www.trendrecognition.com/education/video

If you take a look at the daily and weekly charts of AUD and CAD (vs USD), you will see a radically different picture. Those currencies continue to be in strong uptrend and as of now I see no signs that these uptrends are near completion.

As usual, I will focus my attention on each individual market and as soon as I see a compelling opportunity, I will write about it in my weekly and daily comments on my web site.

Best to your trading,

Alexander

Disclaimer: The services provided by Trend Recognition Ltd are intended for informational and educational purposes only. At no time will Trend Recognition make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. The service is not a recommendation to buy or sell securities or an offer to buy or sell securities. The publishers of Trend Recognition website are not brokers or registered investment advisors and are not acting in any way to influence the purchase or sale of any security and/or its derivatives. You should not rely solely on the information provided on this site in trading. See the full disclaimer here.