The old problems still here

The semiconductor is clearly stalled at the resistance and the bank faces the danger of a failed breakout, both a warning sign to the bulls.

Remember what I said majority of traders were short term bearish over the weekend? Today they got squeezed. Today it feels like the shorts threw their towels and covered their positions. With the Fed speaking tomorrow and market overbought, I think now we are due for some pullback.

Weekend homework

A week has passed since we broke out, now the question is how high we can go and how long the rally can carry on. Once again I have no idea, the reasons as follows:

Positives:

1. Many stocks broke out and have held up well.

2. The market has been very strong and has not given much opportunities for people to get on board. Usually a sign of the start of a lasting bull trend.

3. Not many people believe in this breakout. I never saw so many bloggers or traders have one and only one conclusion: breakout is short-lived and we are going to pull back very soon. Trust me, go to any other trading sites, the conclusion is same and I find it very interesting, since the market always fools the most people.

4. The weekly chart of NDX has formed a solid bottom and broke out.

Negatives:

1. The bank and the semiconductor index still lag this rally.

2. China stock market has stalled.

In conclusion, I thought we would have little upside room last weekend, just as 99% of traders do, but right now I see a chance that we will continue to climb because the market always surprises most of us.

New look

I am trying a new template for my blog, want to make it fresher. Feel it?

A daytrade example

Why I take profit at same day I entered? The profit shows up too big and too quick and the general market condition is not a strong trend, like today. I don't want to take further risk. Now I use daily chart to find my candidates that have to about to break out. Then I use 5 min chart to get in and out. I got in JOBS at $30.44, out at $31.8.

Sorry if this does not sound a typical day trade, but it fits my belief and strategy. Hope you find yours too.

Biggest winner so far!

Up 40% since the entry!

Update: PLCE

PLCE met the target, nearly 9% in 7 trading days.

Break out!

Today the market break out! Just did not expect so soon. Now we have to hold the gain, otherwise it would be a bull trap that is very unfriendly. The bank sector also breaks out, bullish so far.

We are still resting

Now a week has passed, the market is still rest just under the resistance. Can we break out? I still don't know. But here are some positives and negatives for you to think over, you may be a better judge.

First the positives, as usual.

1. More stocks came around and formed a breakout pattern, either cup and handle or bull flag.

2. The already broke out stocks have kept the gain very well, namely as AKAM, FFIV, CMG, VMW, NFLX etc.

3. The recent economic numbers are much better than expectations.

4. China's stock market bounced back after a brief decline.

The negatives:

1. The sentiment has flipped to bullish too fast. The AAII bullish number has grown to 44%.

2. High CPCI number indicates big boys are betting upside is limited. I borrowed the chart from Cobra and attached down below.

Now the neutral factors:

1. The bank sector has been lagging, but now came around a bit. The semiconductor sector has just disappeared entirely in this recently, but the good news is Taiwan is about to break up, which is the manufacturing base of most of semiconductor companies.

My best guess is maybe we rally a little further, but upside is limited since the sentiment and the lack of leadership from the bank and the technology. What do you think?

Concern

China stock market has been down for two days, which could put some selling pressure on US market. Just a head up.

Stopped out of gold

Gold was stopped out with a loss. I will revisit them once the gold returns to its resistance.

The leading sectors just resting

The leading sectors are taking couple of days off that is normal and nothing to be worried about.

Banks are catching up

If the bank sector could break this trend line, it would be super bullish for this market. Bottom line is, as long as banks stop going down, the bull market is alive.

Rally is upon us

More stocks are breaking out or ready to break out; leaders like CMG, VMW, FFIV, AKAM, PCLN etc held well yesterday facing profit taking; China stock market is strong; our weak bank sector is catching up, all signal we will see more upside from here.

It is moving, finally!

RDWR is finally moving!

Update: SOL

SOL reached the price target today, 18% in 6 days!

Update: SOLF

I closed SOLF as well, 11% in 4 days!

Update:SPRD

I also closed SPRD, 23% in 5 days, not too bad.

Update: PNRA

I closed the position on Friday. Easy money has been made.

Pour a little cold water to bulls

I borrow a chart from http://slopeofhope.com/. What it tells me is unless we are breaking above the area with red arrows, it is a bear market rally. As a trader, we have to keep it in mind. Don't let the optimism fool you.

The following sectors look well

They are the leading sectors.

They have to move sooner if we want a breakout

Both the semicondutor and the bank sector are sitting at lower end of trading range. I would be encouraged to see they are leading the rally out of the range.

Can we continue the breakout?

Good question. Honestly I don't know. Here are some thoughts about the recent rally off the low. First, the positives, as always.

1. The economic number is much better than the expectation. I think the double dip scenario is already priced in and now better numbers have put a nice cushion underneath.
2. Many stocks broke out.
3. The weekly charts on the major indices look much healthier than the last week.

Now negatives:

1. Many stocks approached the resistance quickly, so do the major indices.
2. The semiconductor and the bank sector are lagging, which is not good.

And the neutral factor is the sentiment, which happened to be a major contributor to the recent rally. I am not sure how many investors have turned bullish after this rally and we will find out soon. If not many believe in this rally, it would give another vote to the positives and we may have a better chance to break out of this huge trading range.

Now it seems we will go up to the upper band of the range and come back to wait and see if the economy is really improving. So I would still be optimistic, but cautiously.

SOL

SOL also acted well, I am about to take profit.

SOLF

SOLF is approaching resistance quickly after I recommended yesterday.

PNRA

I picked this one up two days ago, now it is time to take some profit.

Updated: SPRD

You should take some profit off the table.

These sectors outperform

Biotech, chemical and retail are leading sectors in this rally. Bank and semi are still lagging.

SPRD

I added this to the newsletter two days ago, today it flies!

Critical time again!

Trust me, I am confused like anyone else trading this market. I am a swing trader who needs a trending market to profit. Let me put this way, I need some green bars altogether or some red bars altogether, not a green bar followed by a red bar followed by another green bar. The recent volatility frustrated me and I have no solution to it, but decrease trading to a minimium level.

Back to the market. As usual, some positives, some negatives. Let's list the negative first.

1. Tomorrow we will have the non farm payroll number again and we are still trading at the lower end of range. The longer we stay here, more likely we will go lower.
2. Banking index is VERY weak, especially GS.
3. The Hindenburg Omen and death cross etc all point to a steeper decline.
4. The economic numbers are bad, as usual.

Now positives:

1. China is still holding an uptrend.
2. Draw the trend line differently, the banking index is sitting on the support, due for a bounce.
3. Very bearish sentiment according to AAII. I also did a survey at http://www.bespokeinvest.com 64% readers see Dow 9000， 36% see Dow 11000. It also validates the deep bearishness among the investors.
4. I can't think of any reason the market crash here without any particular bad news. The financial crisis happened just 2 years ago, the Euro crisis and BP crisis just a couple of months ago, it is rare we will see another nasty event in a row.

So which direction should we go? After all those sayings, I honestly don't know. All I know is if we have a negative reaction of tomorrow's number, I will cut longs, buy back FAZ for protection!

Another leading indicator I am using

Besides our banking sector, China has played a major role in my analysis. China has grown to a much stronger economic entity, now the whole world is evolving around it, including our stock market. From the chart above, the Chinese stock market is challenging the resistance and forming a bear flag. So it also says caution and lots of cash needed.

Banking sector broke down

Looking back the last post about four months ago, I emphasized the importance of the bank and it is still valid. The weekly chart of the banking index has clearly broken the trend line. That means caution and cash is the king.