Potential Swing Trade...AFAM

This stock has been on my watch list for some time now. It has had a tremendous run-up over the past year, especially considering what the over-all market has done at the same time. Recently, AFAM's run has stalled and now it's entering the bearish stage of the trend cycle. This can potentially present a good opportunity to get into this stock at a price that offers a nice risk/reward trade. As you can see by the above chart, AFAM initially broke out of its overhead resistance, the blue line, and ran all the way up to $45. Now it is falling from its highs and the indicators are looking bearish. Their was recently a bearish cross on the MACD, the blue circle. Also the 10 period exponential moving average has started to point downward, which is a sign to sell. I would be looking to enter a long position in this stock around the $22-$26 range, somewhere within the green box at the edge of the chart. The $22-$26 range should offer some support because it's close to the break-out range and the price will be low enough to make several indicators give a buy signal. Once it touches the 26 level, I'll be looking for the MACD, BB width, and the moving averages to start giving bullish readings. Only time will tell, I'll give you an up-date in a couple of weeks after the stocks had time to play out. Good luck out there.

TLT

Back to Reality

Well, it's obvious that the recent rally was a typical "Bear Run." So what is a bear run? Well, a bear run is a counter-trend rally (rally in a bear market) that is generally very swift, very big, and there is a lot of chatter about the rally being the end of the bear market. This last part is key. The rally has to be big and strong enough to make lots of people actually believe that prices are rebounding and that we're all gonna see blue skies from now on. Next, the euphoria turns to concern as the rally starts to stall and then fear sets back in as the market begins to slide back down and selling commences. The above chart is of the S&P 500 for the last 10 days broken into 15 minute increments. The colored arrows demonstrate the various stages of the bear rally. The first blue arrow shows the overall bear market. Then the purple arrow shows the massive rally. Last, the other blue arrow is where we're at now...watching the market stall and start its slow painful slide back to reality. Good luck out there and be patient, plenty of great opportunities will present themselves before this bear market is over; just don't be in a rush to jump in.

TLT

Morgan Stanley on Death Watch

The markets are nuts today which is not much of a surprise. Dylan Radigan declared that all the indicators are broken on Fast Money yesterday which has to be some kind of indicator in and of itself.

To top things off, Morgan Stanley is latest on the death watch list. Still plenty of time to short this one if your up for a little extra risk. There's always someone who owns s a stock like this and asks after the fact how they could have avoided the situation of owning a stock that is going or about to go under. My answer is to take a good look at the above chart. If you ever own a stock and its chart looks like that, sell it! Either sell it or be willing to take the hit when in gets taken over for $1-$2 a share. Good luck out there.

TLT

Follow Up On the Dow

In an earlier post, I showed a chart of the Dow (DIA) and commented that the index looked like it was nearing a short-term bottom. One indicator I referenced was the Bollinger Band Width (BB Width) and I pointed out that it showed a reading of 15, the highest since July of this year. Well now the BB width indicator on the DIA chart is clocking in above the 25 mark, approximately 10 points above it's most recent high reading. So what does this mean? For starters, it says that we're most likely even closer to a short-term bottom. The BB width is a dynamic volatility indicator, similar to the VIX or the Average True Range. Generally, a high reading on the VIX, ATR or BB width will signal extreme volatility which is quite often an early signal of capitulation or a bottom (or a top in bull markets).

The nice thing about the BB width is that it is computed for the individual instrument (stock, bond, currency, etc.) as opposed to the VIX, which is a general volatility index that represents the entire market. For this reason, a reading of 25 on the Dow will be high but that same reading may not be high on a different stock or index. You have to compare the levels for each individual security, which is nice because you can use it in conjunction with other indicators to formulate buy/sell signals. Currently, the BB width on the Dow is a screaming buy, but we'll just have to wait and see how it plays out. Good luck out there.

TLT

Dollar Analysis

There has been a lot of talk about the dollar's upcoming collapse due to the bail out. I wanted to get to the bottom of what's really going on in the short-term with the old green back because commentators tend to exaggerate or just be flat wrong when they talk about the dollar.

As you can see in the EUR/USD daily chart below, the dollar has broken through its recent intermediate trend channel. This tells me that I don't want to be long the dollar but, I'm not ready to go against it either. With all the chaos of late, its very hard to tell if these types of pullbacks are full blown trend reversals or just emotional reactions. My gut says that it's the latter.
One thing that I'll keep my eye on is the 50 and 200 day moving averages. So far, the dollar has fallen back to its 50 day moving average and stalled. One indicator I like to use for trading in forex is the 10 day ma along with the 50 day ma. Once the 10 crosses the 50, it will confirm an intermediate trend reversal and I'll look for a nice pull back to sell the dollar into.

Interestingly, there are some out there that see this recent pullback as a bullish opportunity for the dollar.

Selling smallcap and buying oil...

Lately one of the few bullish indexes has been the Russell 2000 but the recent false breakout and failed bullish indicator readings are telling me that the small cap set up might not pan out.

Instead of following through with the small caps, the street has been selling small caps and buying oil; perhaps the recent downturn in commodities is just a short-term dip. Only time will tell.