DOW FUTURES inverse head and shoulders. Going long with Financials for a Santa Claus RALLY

The Dow futures chart shows an inverse head and shoulders, a bullish chart pattern. A break through the 11250 line would allow the DOW to rise to 11500.

I will be playing the financials again, I am hoping that it would lead the Santa Claus rally.

Here’s why:

- Mortgage delinquencies are down to 13.5%.
- Seriously delinquent loans (missed 3 payments) dropped to the lowest level since 2009 of 8.7%http://online.wsj.com/article/SB10001424052748703374304575622490905373672.html

- also we have Morgan Stanley estimating that the litigation scares are overblown…http://blogs.barrons.com/stockstowatchtoday/2010/11/08/bac-morgan-stanley-says-buy-litigation-woes-overblown/

- we have the FED saying that the estimated losses range from $55bln to $120bln for the whole banking industry.

- This is in line with many other banking analysts who are estimating somewhere between $30bln to $100bln in losses.

- put it simply, Bank Of America is expected to lose somewhere between $7bln to $30bln(worst case scenario). Assume that 50% default, 10% delinquency, 90% severity. Over 3 years, we see the worst case scenario as $10bln / year, and that means a negative $1 EPS effect. Analysts are lowering BAC’s earnings to only $1.50 next year due to this mess.

- JPM will have less of an effect. $20bln loss is their worst case.

Nevertheless, I think this mortgage REPS mess was highly overblown and it is okay to ride it upwards now.

Expecting a 5% correction from here.

I think the rally has been overextended.

While this is not a recommendation to sell your long positions, it is actually a guide to purchase more at the support level.

I see a good support at 10870. And that’s the 38.2 Fib line, and also a previous consolidation range.

This is a 5% expected correction. It is based on selling the news of the Republican victory and the official announcement of QE2.

Surprising job numbers helped curb the correction from happening earlier on. However, with the increasing number of shooting stars all across the S&P 500 stocks, it is an ominous sign that a correction is awaiting us.

The reason for the delayed correction was due to OBAMA’s willingness to discuss the extension of tax cuts to all people (including the 2% rich fat cats).

This is because, investors may not need to sell off their shares to capture that tax break. This severely reduces selling pressure and any fluctuations from here will be caused by traders and short term speculators.

The market is too hot right now, DOW at 12000 seems so close. Just 2 months ago, everyone was so pessimistic. And suddenly, they are overly joyful. This is another warning sign.

Nevertheless, stay long is such a market, and perhaps consider short term short positions.

TRADEDRAGON FOCUS LIST suggested buy price

BAC – Bank Of America $10.88
JPM – JPMorgan $36.5

FAS - $18.5

AA- Alcoa $12

X – United States Steel $40

MGM – MGM Resorts $10

LVS – Las Vegas Sands $30

 

VZ – Verizon $28

T – AT&T $25

SPY – SPDR ETF $115

TRADEDRAGON seeks stocks that can contribute at least 30% returns in a year and these stocks most probably will, except for the SPY one.

Deserted NEW YORK AREA.

Time Taken: today at 4pm (market closing time)

Economic recovery is underway. The recovery only slowed down.

We can see from the Copper spot prices that the economy is recovering at a healthy pace. Then why is the FED considering QE2?

Copper spot price has hit a 6 month high, and it is battling resistance there. Most probably, it will dip to $3.4 as investors and traders alike are still scratching their heads and wondering whether this economy is really moving.

The PRE-Earnings season is here again, and stocks have rallied about 25%. Should investors and funds take profit now?

These are a few people who think you should.

- Jim Cramer
- Bob Chapman
- Kass

Warren buffett still thinks we are in a recession. With so much uncertainty out there, can stocks hold this rally? Or should traders quickly collect their profits now?

IT’s all up to your risk attitude. Don’t be too greedy though.

Watching these stocks to buy on any dip.

BAC, C, WFC, X, MGM

EURO CHART looks bearish. USD strength ahead.

The EURO might be hitting a major resistance trendline. This may pose severe downward pressure on the currency amid US weakness on Friday. Selling pressure may cause the EURO to drop to 1.27 for a 300 pips drop.

What does this mean for the stock market? USD strength = Bearish for the market. The correlation is about -0.7

Metal prices will drop when the USD gains strength. This will cause metal stocks to drop if this scenario works out. Again this is just a prediction, not a 100% sure thing.

What’s the trade?

Short the market

OR

Go long on the next pullback.

Suggested BUY orders

AA - $10.6

BAC - $12.8

CLF - $57

FCX - $75

LVS -$28

SNDK - $30

MGM $9

WYNN $85

 

Happy Trading. Suggest a trade by leaving a comment.

What Double Dip? Stocks are too cheap here. Fluctuate around 10500 for the rest of the year.

China is still expanding

Europe is improving

USA is still adding jobs
The small business bill is still in progress, this will support more job addition in the next months ahead.

Interest Rates are ultra low, yet inflation remain low
As long as inflation does not threaten the low interest rates, the FED is able to allow low interest rates to remain for an extended period of time, this promotes economic growth.

Earnings will continue to grow, maybe at a slower rate
Earnings should continue to be healthy as most companies have successfully completed their profit draining restructuring plans, they are now able to survive tough economic conditions and continue to profit.

Metals stock levels are going down
There is real demand for the metal now. India and China and the Latin Americas are driving this demand. Metal demand will increase by 10% this year, and next year.

Capacity Utilization at healthy 75% level
Factories are operating at the profitable 75% level. Companies like US Steel are expecting to start profiting in Q2. Despite lower metal prices, metal companies would be able to profit decently due to better operating margins after the restructuring.

Metal prices are still higher than Analysts’ previous year estimates.
In September 2009, analysts called for average aluminum price in 2010 at only $0.80/lb. Analysts were overbullish on copper though. They had also called for a 10% growth in the metal demand, and this view is still held till today.

EURO Worries
Economists and analysts are afraid that Europe might be experiencing a dip in its economy, however, recent economic data has supported that Europe is still expanding at 1.3% rate which is decently healthy. Spain will be releasing its bank stress very soon, and we will be able to put Spain’s woes at ease finally.

A bullish rally in the making? Dow to 11800, could it happen?
Let’s revisit 2009, the market was in a bullish mode, worries about China slowing growth rattled markets, this was further fueled by the downgrade of Greece and Spain last December. The DOW fell sharply as a result in February. However, it quickly recovered as investors were happy about the job creation sparked by the euphoria of OBAMA JOB PLAN.
However, this time, our President is busy with BP, busy with Financial Bill, busy with bills that hurt the economy.There is no optimism except a few words and I quote “ We are heading in the right direction ” (Obama’s reaction to the latest job figures).
Furthermore, negative news continued to bombard the street.
- China PMI decreases
- Germany chooses to cut its budget
- MOODY, FITCH, S&P started to time the market and DOWNGRADE SPAIN, GREECE at critical support levels so that traders can break those supports.
- Economic indicators kept showing poor results
- Unemployment claims could not go below 450k.
- BP OIL Spill hurt economic growth in the Gulf
- Spanish bank bailed out. Cajasur.
- CAPITULATION kept buzzing the street, CNBC kept trying to create negative sentiments.

However, this is going to end soon.
What positive news await us?
- Bank Stress test in Eurozone
- Spain grows
- Obama Small Business Bill
- China Yuan revaluation boosts US exports
- EURO rally, sparking DOW rally
- Oil rises to $100
- BP oil settles
- Australia SuperTAX compromised
- China need not cool its economy
- India Growth spurs
- another stimulus?

Why the WEST lags the EAST and Asia?
Beats me.

I am bullish at this level. We are already at a major support level after going through so much, the market is fully oversold. I expect fund managers to start buying shares at this level.

Weekly Review ending FEB 26

This week ended with a long list of bad economic data.
BAD NEWS:
Consumer Confidence
Unemployment Claims
Housing Sales

Good News:
Approved Jobs Bill
Inflation is not a threat
Bernanke saved the market, reduced speculation
Interest rate is staying at unusually low level
Chicago PMI up, prediction for ISM to be up

As investors, we can see that the BAD NEWS outweigh the good news. The bad news show a weak economic recovery as the jobless issue is not addressed by the government well. As a result, consumer confidence was bad.
As for housing sales, it is a general trend that housing sales are weak during the December and January season as people do not usually buy houses during Winter. Most sales are done during Spring and Summer, so there’s no worries for this.

As for the good news, the Jobs Bill could create and save another 2 million jobs. The Chicago PMI and the various manufacturing indexes last week help us predict the ISM that will be released next monday. And the prediction is a positive ISM once more.

The week ended higher eventhough the bad news were really bad. It shows that the majority of investors are not swayed by these bad news which are lagging indicators. The see saw action this week proves that liquidity of stocks is really low as the market was so volatile while the volume was small.

Most probably, the big boys were bullying the small retail investors by burning them with margin calls and scooping up their shares at such low prices.

Next week, we need to see the ISM. A good reading of 58 would boost the markets to new highs.

This week good trades were Bank Of America Corp and all financials. Hedge funds are really keen in buying financials as seen by its remarkable rise, even though the housing recovery seems to threaten financials the most. This can be seen as a leading indicator. Hedge funds are betting on an economic recovery and they love to bet on banks that were the hardest hit.

Bad trades were Alcoa Inc, it broke the nice triangle pattern downwards, as a result, it dived to a low of $12.80. The big boys scoop up lots of Alcoa Inc in the past 2 days.

Alcoa Inc surprisingly underperformed the market on Wednesday. It was one of the only 2 DOW stocks that went down while the other Dow stocks were green.
Not surprisingly after that, 2 option plays were seen.
1: A strangle $12 - $13
2: A bullish call buying of July 15 contracts. 36000 contracts traded hands, and one block was 27000 contracts. Only one big investment bank could have done that. The derivative department will soon face regulation by the government is playing with Alcoa Inc.

There is something going on with Alcoa Inc that has resulted in this dirty Wall Street manipulation. (this is an unfounded conspiracy) Option market is the best place to check out this manipulation due to its lax regulation.

Casino stocks are trading at a tight range after releasing their bad earnings for their supposed strongest quarter as that is the holiday season. Start accumulating Casino stocks at this low price. They are going to be volatile soon.

Retail sector continues to shine even though consumer confidence index was low. MACYS M rose from 15.6 to 19, a remarkable rally despite this poor retail sentiment. The market is really acting strangely. Contrarians are playing this. When there is good news, stocks go down, when news is bad, stocks go up. Wierd wierd stuff.

I am adding Micron Technology into my Tech portfolio. I will talk about it in greater detail next week.

I am still holding Alcoa Inc AA, Bank Of America Corp BAC, Las Vegas Sands LVS.

I will continue to accumulate Alcoa Inc AA at this low level. I have cancelled my short recommendation on US Steel. The steel sector is too strong. Eventhough US Steel is slated to report poor earnings for this entire year, it is still a cheap stock compared to its peers, hence its price may even increase. It has a target price of $90 by analysts. I would just avoid this stock and play other commodities stocks such as FCX, AKS and AA.

tradedragon Weekly Update FEB 16-19

Monday: President’s Day
Tuesday: Bull Rally due to Bullish sentiments in Europe
Wednesday: Materials profit taking, Financials soar.
Thursday: Philly Index surprise, Unemployment down
               Market rose. Bank Of America soar.
Friday: Market opened low, FED increased discount rate.
           Option expiration day, low volatility.
           Steel soared.

It was a bumpy short week, and mostly bullish week.
Option expires today, thus most stocks ended up hovering around their whole number region. JPMorgan JPM could not move beyond $40, MGM Mirage and others too…

Even the DOW closed at 10400.xx a whole number too.

Commodities are in a rallying trend.
March Copper contracts shot past 3 week high and spot price found support at $3.30.
Aluminum rose to $0.94, a breakout above $0.95 will send it to $1

Dollar index rallied when Fed announce their plans. However, it is starting to reverse its trend.
EUR/USD ran up 150pips to $1.36 from a low of $1.345.
A bullish trend is expected for EUR/USD as the dollar starts weakening again amid strength in the stock market.

Inflation fears were subsided after Core CPI showed negative for the first time in many years. CPI also increased 0.2%, less than expected.

The economy looks healthy again as the FED move can be seen as a confidence booster in the financial system. For this recovery play, invest in Financials, Materials, Industrials, Retails as these sectors tend to yield the highest returns during this period of economic recovery.

Underperforming sectors include Utilities and Telecom

If you are in to this TECH rally, consider APPLE AAPL, Intel INTC, Sandisk SNDK and AMD. These stocks are still a great buy as they are able to yield 30% returns by year end.

Speculative sectors include airlines and gaming. Watch Delta Airlines DAL, and Casino stocks as usual. WYNN Resorts, Las Vegas Sands, MGM Mirage and Melco Crown Entertainment MPEL.

Good Trades for the week.

Long Bank Of America Corp BAC: $14.8 - $16.0
Long Citigroup C: $3.20 - $3.40
Long Alcoa Inc AA: $13.5 - $13.90 

Current holdings:

Long Alcoa Inc AA $13.5
Long JPMorgan $39
Long Intel $19.5
Long MGM Mirage $10.5
Long WYNN Resorts $61.5
Long Las Vegas Sands $15.5
Long Melco Crown MPEL $3.7

Long EUR/USD $1.346

Will do some technical analysis for potential breakout stocks for next week.

Weekly Review. Stock Picks. Best Pick: Bank Of America Corp.

Next week outlook
- Industrial data expected to be positive
- Unemployment expected to decrease
- Euro zone scrutiny

Most likely scenario:

Commodities are in a bear trend, Gold, Copper, Silver are at major resistance level, they will most likely decline.
Commodities need to find their bottom, especially when the US index is going up due to the weak Euro.

Bearish on commodities sector.

Financials continue to be undervalued. Banks have taken a huge beating starting with the Volcker plan. However, it seems like they have been overdone. Concerns of the Greek bailout have hit US banks too. Financials are oversold and would be the first one to pick up steam for this upcoming rally.

Retails are also being sold furiously by investors as they are mostly overbought in the latest December rally. Correction is taking place.

Stock Picks:

Short

United States Steel X
Caterpillar CAT

Long

All large caps banks

Bank Of America Corp BAC
Citigroup C
JP Morgan JPM
Wells Fargo WFC
Goldman Sachs GS
Morgan Stanley MS

Best Pick for next week:

Bank Of America Corp BAC

In keeping my trading plan simple, I will only focus on 2 sectors for next week. Watching too many sectors would only be a distraction.

In general, short Materials, long Financials.

Last week trading plans went quite well.

Good trades:

Alcoa Inc (NYSE: AA)
AA Short $13.50 - $13.10
AA Long $13.10 - $13.55

Las Vegas Sands (NYSE: LVS) and WYNN resorts (NYSE: WYNN)
LVS Long $15.5 - $16.6
WYNN $61 - $61.5

Bad trades:

Bank Of America Corp (NYSE: BAC)
BAC Long $14.80 - $14.5   (-30cts)   HOLD LONG

United States Steel (NYSE: X)
X Short $47 - $48 (-$1)                   HOLD SHORT

Bad News last week
- China tightening credit
- Greek bail out may cause the Euro zone to collapse
- Results in strengthening of USD – stocks, commodities weaken
- Dubai CDS increasing risk

Good News last week
- Unemployment data brightens
- Materials demand increasing
- Greek bail out aid 




Disclaimer: All picks are solely based on my own opinions. Consult your own financial advisor for trading ideas.

Bull Rally Part 2 2010

We might be at the foot of this next rally of 2010. The first rally started January and ended about mid January.
We have heard lots of bears calling a market top starting early December, however, the market kept climbing and climbing. Then finally these bears’ words came true when the Dow was at 10700.

20 days of selling sent the Dow spiraling downwards to 9800. And now we are back to 10150. This shows that the general trend is still bullish.

We had that Dubai, now Greek, what else? Anymore?

Remember Dubai? Market plunge, then it rose higher?
Similarly, Greece, we will go higher than that.

Why the bull?

Economic data: Awesome.
GDP  --- Good
Unemployment rate --- Good
Unemployment claims --- Good
Credit default --- excuse me Marc Faber, you sure USA, UK will default its debt? Try harder.
Credit Cost --- Good (see Goldman report)
Home prices --- Increasing. Good.

Plans: Great
Interest rate increase --- end of the year. Expected
Obama job bill --- Awesome
China tightening policy --- bad… but no matter how they tighten, their growth just keeps escalating.
Greece help --- unclear, but should be like Dubai and Spain

What to expect:
Uncertainty --- getting lesser
Unemployment --- jobs are going to be added soon
Recovery --- slow but still faster than expected

Sectors that should gain the most:
Base metals
Financials
Industrials
Retails

Market is uncertain. Bears are stronger.

Due to the fiscal situation in Europe, global markets are uncertain. Investors are selling their shares, collecting the profit from the rally.

At this point, charts are not going to help much. Though the bull case is now very weak.

All stocks are correlated to the Dow Index, thus despite how good the stock can be, if the DOW drops, there is bearish pressure on that stock. This is because portfolio manager will reweigh their portfolio as other stocks (in the DOW) have better value than that stock.

The Dow Index looks like it could go towards 9600. This depends on this week’s trading. If stocks rebound tomorrow, then the correction has ended.

Stocks that are good play tomorrow.

Alcoa Inc. AA Buy to cover at $12.85  BUY at $12.8
Bank Of America BAC Average in BUY at $14.2

That’s it.

Alcoa Inc may be testing its 200SMA at $12.80 tomorrow. It is thus the best play if the stock moves down there, it is a buy.

Close all long trades. Bear market coming

Close all the day trades for long. Congrats if you made profit from WYNN, LVS, AA.

Bear market as seen by weak DOW chart.

Correction to 9600 may happen. Close all day trades. Short AA.

Weekly Review and the Week ahead

This is a review of our previous week to learn what went wrong, what went well and what could be improved upon.

Good Calls:

Short ALCOA INC. AA at $13.8 to $13.1    5% gain  
Short United States Steel X at $48 to $44  10% gain

Long Bank Of America Corp BAC at $14.8
Long Las Vegas Sands LVS at $14.95

Bad Calls:

Long Las Vegas Sands LVS at $16.9
Long Bank Of America Corp BAC at $15.15

I was overly bullish last week, thus I made 2 early Long purchases. I should use the DOW chart to determine the market direction. Overall it was a good week as we made from the shorting of materials.

THE WEEK AHEAD

I will be watching the Financial sector which was oversold. The fundamentals of that sector are really good, the sell off was a trading scare and the institutions must have accumulated.

I am wary of Material stocks such as Alcoa Inc, though the chart looks good, however, they will be affected hugely by the commodities trade. Aluminium price has been diving down from a high of $1.05 to only 89cts now.

I am bullish on Casino stocks such as Wynn Resorts WYNN, MGM Mirage MGM, Las Vegas Sands LVS and Melco Crown Entertainment MPEL.
This sector will be a day trader’s playground next week. Expect volatility come monday. The charts suggest that this will be bullish throughout the week and it could test previous highs. This is because, MACAU gaming revenue just keeps increasing. That is why all these stocks are strong as they have exposure in the Macau gaming market.
I think WYNN would be the best play.

Tech sector continues to amaze with their bubble rally. There is no doubt high growth in this sector, attributing to their enormous premiums which have been flagged as overvalued.
Watch Apple Inc AAPL, Microsoft Corp MSFT and Intel Corp INTC.
This is currently not my favorite sector as the stocks are trading at premiums. In a recovery play that we are seeing now, they have the least upside as compared to Materials and Financials and definitely Casinos.

Dragon Stocks Next Week:

Las Vegas Sands                         LVS
MGM Mirage                              MGM
WYNN Resorts                           WYNN
Melco Crown Entertainment       MPEL
BANK OF AMERICA CORP             BAC
Wells Fargo & Company             WFC
JPMorgan Chase & Co                JPM
Goldman Sachs Group                GS
Intel Corp                                 INTC
Avis Budget Group Inc                CAR

These stocks are suitable for day trading and investing.
I will be providing chart analysis for the stocks that I intend to trade.

Disclaimer: These stocks recommendation are solely based on my opinion. All traders are advised to conduct their own due diligence before making a purchase decision.

Wynn Resorts, Limited (Public, NASDAQ:WYNN) BULLISH Trade

I think I would rather play WYNN on monday.

WYNN Resorts Limited is a safer stock as it targets a niche market, the luxury market, as compared to Las Vegas Sands.

DAY TRADING PICK

BUY $61.4 – Sell $64 4% gain.

Check back on Sunday for next week’s trading plan.
As usual, chart analysis and stock picks will be provided.

HOT Stock Picks as of now:

Las Vegas Sands Corp. LVS
Wynn Resorts, Limited WYNN
Bank of America Corporation BAC
JPMorgan Chase & Co. JPM
Alcoa Inc AA
AK Steel Holding Corp AKS
Intel Corporation INTC
Cisco Systems, Inc CSCO
General Electric Company GE

Market should turn bullish next week.

- Unemployment rate drop 9.7%

Charts will be provided soon.

FEBRUARY TRADING GUIDE

Currently, our market is in a correction mode, however, it has touched the fibonacci retracement levels which may promote a rebound.

I am calling this a bottom now. It is time to load up.

HOT STOCKS:

AA
BAC

I will be concentrating on trading these 2 tickers.

This coming monday, I will be looking to buy AA at $12.75 and BAC at $15.05