More Facebook Fiblines

Welcome Back Traders.

Its been a wild few weeks in financial markets. One of my favorite stocks Facebook had a wild ride after earnings, rallying from the high 90's at my last post up to the upper snow line just south of 110.

Recall this was one of the potential stopping points from my blog post FB Breakout - Again.

Since then noticed how Facebook bounced off the white line at 109.75 (within 8 cents) then sold off down to the lower red line at 100.45 (within 2 cents) then bounced hard.

I used this information to sell against the upper part of the range, and buy into the lower end of the range.  The trades were not perfectly executed by any means.  But it shows the power of the Fib Lines in predicting support and resistance levels ahead of time.

FYI - you can get my Fib Lines lines indicator for Thinkorswim for free, just send an e-mail to fx-mon@yahoogroups.com.

Take care and good trading.

FB Breakout - Again

Welcome Back traders.

We saw a major breakout in many tech stocks last week and the market is once again on fire to the upside.

As you know one of my favorites is Facebook.  Let's try to get an idea of where this move might run its course using 2 different methods.

First lets look at the Fib lines.  With this past week's action, we breached the 161% line at $100.47.  That opens up a move to the next upper white lines at 105.23 and 109.74.  These levels might be the end of the move, or might be just places along the way where prices are deflected back.

The next most important upside level is the next green line overhead at 115.49.

As for the 2nd method, let's try a Fibonacci Extension of the recent high to low move from 99.25 to the recent low at 72.  I did some quick research on whether to us the wick high and lows to measure the move, or to use the high and low of the real body of the candle.  The answer I got is that it doesn't matter which you use just, be consistent.  In other words, if you use the wick high (as I did here) use the wick low and not the real body low.

In either case, we find the 61% of the recent move ends at $115.71 which is all all the far from the upside tree line at $115.49.  No one knows where the move will end of course, but those levels are my best guess.  Facebook earnings are coming up 11/4/2015.

FYI - you can get my Fib Lines lines indicator for Thinkorswim for free, just send an e-mail to fx-mon@yahoogroups.com.

Have a great week ahead.

FB Breakout

Welcome back traders.

One of my favorite stocks and largest individual stock position is in Facebook.

After weaving back and forth pretty well with the confines of the Fib lines, it seems likely we are going to get a re-test back to the recent all-time high at 99.24.  After that, the next most likely target is the 161% line overhead at about 100.47. Next earnings coming up on 11/4.

I also started a new position this past week in Selective Insurance ticker symbol SIGI.  This symbol popped up on my "New High, Positive Growth Low PE" scan.  With a 5-year earnings growth rate of 27%, a PE of about 12 and a 1.6% yield, the fundamentals are outstanding.

As for the general market, it looks like we have turned the corner and we are not going to get a re-test of the August 24th lows.  So its full steam ahead for the Santa Claus Rally and we can starting building wealth once again.

FYI - you can get my Fib Lines lines indicator for Thinkorswim for free, just send an e-mail to fx-mon@yahoogroups.com.

Have a great week ahead.

Waiting out the Bear

Welcome back traders.

Well it was a nasty September and we are about halfway through the seasonal rough period for stocks.  If course it could get nasty any time with stocks, but its statistically more likely to occur during September and October.   As a mostly long-side investor, it was downright ugly at times.  Here are a few tips to help you get through it:

1) Look for Strength

As Cramer likes to say, there's always a bull market somewhere.  And for me the action seems to be in high growth stocks.  Autozone (AZO) is one such example, its up 28% for the year and looks unstoppable.  And check out how well is has been reacting to the Fib lines.

Another favorite is Facebook.  I use it every day and I don't think this is a better run social media company on the planet. It is also obeying the Fiblines very nicely and it seems like just a matter of time before it re-tries the 161% red line just over head at about 100.6.  This was a point of resistance above which is partially obscured by the chart label in the upper-left hand corner of the chart.  Facebook has become a monster and I think it has plenty of upside ahead.

2) Consider your alternatives

With interest rates so low, Stocks continue to be the only place to be.  Sure cash is safe, but it doesn't earn you anything and in the long term, high cash levels will eat into your account growth which is a negative.  Remember, a large portion of long term stock returns come in dividends, and you don't get paid unless you are holding the shares or the ETF.

3) Remind yourself of the fundamentals

Keep in mind that individual stocks only report earnings 4 times per year. Sure stocks are thrashed about by the general market, but this causes them to become mis-priced with respect to the the fundamentals.  But don't let the day to day fear and greed to distract you from the fundamentals behind your favorite stock or even the general market.

4) Turn off the monitor.

Several times the past several weeks, I just turned off the monitor because I could not take the pain.  But I know that (as sure as the earth turns) that the worst of it is going to be over a few short weeks.

By the way, you can get my Fib lines indicator for Thinkorswim for free, just send an e-mail to fx-mon@yahoogroups.com.

Have a great week and hang in there.

Embrace the Bear

Welcome back Active Traders and Wealth Preservers.  In case you haven't been paying attention, we have a major bearish setup developing in the markets.

Most media outlets consider 10% to be a correction. By that measure and from their tops,  SPY is down -9.87%,  DIA is down -12.2% and QQQ is down -10.6%.  But that's just from the top, On a year to date basis, SPY is down 6%, DIA is down -12% and QQQ is down a mere -1.09%.  Not such a big deal, right?

Things get ominous however when you look at the weekly chart which shows a downside break of the ascending trend line formed off the lows set back in 2011.  And immediately after that (it's tough to see but trust me), prices spike lower, race back up to the trend line,  then fail and turns back around to the downside.  That's where we are right now. What I am expecting next?

I expect we are going to revisit the lows set last Monday 8/24 which is about 6% down from here on the SPY and that's just getting started.  After that, the next likely target is 173 on the SPY. Looking further out I think the eventual down side target for this move is going to be the 161% line which is about 155 on the SPY.  That is down a hefty 20% from these levels and could take several weeks to reach those levels.

So what can you do about it?

1) You can raise cash if you have not already.  I am about 50% in cash at this point.

2) Buy short ETF's to offset your longs.  This may be preferable to simply selling your longs since that may trigger paying a long term capital gains tax on positions you may have been in for several years.

Use this table to find matching short exposure ETF's to offset your longs.  Note that you may have to buy a multiple of shares of the underlying to offset your exposure.  For example, if you are long 100 shares of DIA, you will need to buy 430 shares of DOG to effectively offset your long stock.

Now if you are long a bunch of ETFs (and I am long nearly every issue in this table) you may not want to put on 10 offsetting positions to offset the 10 you are long already.  You might just want to put on 1 or 2 large positions to offset your entire long side exposure. This way you can get out with just 1 or 2 trades instead of 10-12.

Another benefit of the short ETF's is that when things get really ugly, you can just close out the short ETF's and take a profit which is much easier to do psychologically then to have to enter new longs.

3) Put on some offsetting options positions.

Dan Nathan from CNBC's Options Action recommended the SBUX October Monthly 47.5/52.5 put spread for a debit of 1.0.  That trade as a max gain of 4.0 for a max loss of 1.0.  I like those and options positions with a similar risk/reward scenario.

4) Hold your nose and buy.

This would be an option for you buy and hold types.  Put in a limit order to buy SPY at 182.6 then 172.5 and finally 155.15.  This way you will scale in on the way down.  This strategy has the highest chance of success in the long term, but you will experience some pain on the downside.

Good luck in the weeks ahead.

Wow, what a week

Wow, what a week it was in the financial markets.

Let's see how my prognostications from last week held up in terms of the Fiblines.  Recall I expected we would find support at about 188 on SPY just south of the tree line.

On Monday we opened just below the 188 level and quickly plunged down to the next lowest level at the 182.5 level and bounced hard and ended up closing for the day at about 187.5.  From there, we rallied back up to the upper white line at about 195 and got deflected back down again and closed the day Tuesday at about 187.2, just below Monday's close.

Tuesday's close was the lowest close for the week from there we shot up and closed for the week just shy of the breakdown point at about 199 on the SPY. So while we violated my expectations in terms of the maximum moves, the extremes of the price moves were very well bracketed by the Fiblines lines we knew in advance.  If the chart on the left does not convince you, nothing will.

As to how I traded it, I didn't!   Instead I went into the week already with a high cash position as a result of analysis done earlier in August and detailed in my post Time to Raise Cash.  I did put on a small offsetting short position in SPY on Friday since I think we may have run our course to the upside for the short term.  In other words, I think the rally off the bottom was just a relief rally back up to the breakdown point and we have further work to do on the downside before all this is over.

As for the rest of out favorite stocks, the FANG stocks (Facebook, Amazon, Netflix and Google) had big rallies of the lows of the week.  But experience tells me not to chase these rallies regardless of what the market does.  Instead, I'm going to stay on the sidelines for the next few 6-8 weeks since we have a very strong seasonal tendency for increased volatility (to the downside) between now and the last week of October.

So keep a high cash position, keep your powder dry and have a great week ahead.

SPY - How Bad is it?

Welcome back Active Traders and Wealth Builders.

Long bull markets with periods of low volatility tend to lull us into false sense of security.  This past week's carnage in the financial markets is a healthy reminder that stocks can and do go down.

The weekend gives us a chance to step back and put the declines into perspective.  So let's take a look at the biggest declines in the SPY in the past 15 years.  To this, I used a weekly chart of the SPY and the excellent trend line tool in Thinkorswim to build the following table showing the declines greater than 12% since the year 2000

Start	End	Weeks	Pct Decline	Angle
4/2000	10/2002	136	-50%	-71 Deg
10/2008	3/2009	76	-57%	-84 Deg
4/2010	7/2010	10	-16%	-83 Deg
5/2011	10/2011	23	-21%	-82 Deg

The angle of the decline is important since it shows the steepness of the move.  Just for sake of comparison, I took a look at the angle of the upward move off the lows of 2008 to the recent high and found in increased at about 66 degrees.  That is some solid evidence that stocks go down faster than they go up.

Now let's look at a table of the current decline assuming it ends now - which I don't think it will.

Start	End	Weeks	Pct Decline	Angle
5/2015	8/2015	10	-7.5%	-66 Deg

To put it into perspective, we have not yet declined even 10% from the recent high in SPY!  So I expect we have further to go to the downside before we find some support.  How much further you may ask?  Let's take a look at voodoo to concoct a few likely scenarios, along with some advice as to how to play it.

The chart above shows a weekly chart of the SPY.  The lowest red line on the chart is the 161% move off the lows of 2008 at about 155 on the SPY which also corresponds to the highs set in March of 2000 and September of 2007.

Most of the meaningful declines since 2008 cross 3 voodoo boundaries before finding support.   If that plays out in this case,  I expect we will find support at about 188 on the SPY which is the green line just south of 190 on the chart.   That would be about a 12% pullback which is about another 4.5% to the downside from Friday's close.

As to how to play it, here is my advice:

1) Don't sell into a panic

For those of us who are careful with our money, the dollar losses is these moves can be staggering. Its easy to panic and sell at the worst possible time.  Don't let the dollar figures freak you out.  Instead, turn off the monitor, go for a walk and look at the big picture.

2) Don't buy the first dip

If you were looking a buying a great stock like Facebook, you might be tempted to jump in early in the decline and pick it up a bargain prices, right?  Don't fall for this, you will probably get a better entry later, see #3.

3) Stay on the sidelines and wait for it!

Don't base any buying decisions on a single day's action.  You won't pick the bottom since they typically occur on large one-day capitulation-type moves to the downside.  Instead wait for a few days confirmation that the market has found its footing before changing to a bullish mindset. Remember bottoms take time to form and don't try to be a hero and pick the bottom, particularly this early in a decline.

Seasonally speaking, the odds of a decline being over don't occur until the 3rd week of October. So I expect we are relatively early in this bear cycle.

A much better play from here is to wait for a rip-the-shorts-heads-off rally up the breakdown point at 200 in the SPY before entering some bearish positions.

4) Look at the bigger picture

Pull up a weekly or monthly chart to see how far we have come off the bottom.  This decline is not that bad and I expect it will get worse before it gets better.  So keep your powder dry, and cash on the sidelines, because I expect you will get a better entry point in the future.

Have a great week ahead.