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Fed day: Bullish?

March 21, 2007
tags: , , , , , ,

Fed funds rate left unchanged at 5 1/4. Just in case you don’t know where to find the actual FOMC statement, you can read it for yourself here. Scroll down lower on the page to the link for this month’s statement. It’s interesting to see the subtle changes in language between this statement and the last one. It does seem that they are opening the door for potential rate cuts on the horizon.

The markets have bounced in a big way. Most of the major indexes are showing double bottom structures that arguably confirmed yesterday, or definitely today. Here’s the SPX. This action tells us we have to ease off on the bearish posture and entertain at least a neutral if not slightly bullish posture for the short term. However, I’m inclined to think it won’t be easy to clear potential resistance at the 1450/1460 area.
Just remember to consider your basic approach to trading/investing. With the assumption that most of us are “trend” traders, in periods of indecision like now, we can reduce our exposure to either direction and/or focus on much shorter time period trades, preferrably with attainable targets.

The total volume on the NYSE shows an “accumulation day” with gains on more shares traded today than yesterday. But the volume for today and the previous two days is still low compared to the activity since the big drop on Feb. 27, so I’m not going to get too worked up about the bull case just yet.

The VIX reached an intraday low beneath where it started on Feb 27. Somehow, with the craziness of the last three weeks, I don’t see the VIX settling back into a nice comfy trading range below 12.50 again. If not, we should expect some continued choppiness.

AAPL looks like it is back in play as it has crept its way back above resistance. But I’d prefer to wait for a bounce of some sort. It is too extended from any support for my taste.

CTSH has three green arrows with a fresh one on the MA. It also has moved out of a symmetrical triangle formation with lower highs and higher lows acting like a winding coil. It lacks the volume needed to give it conviction on the breakout, but it at least gives us a target. That would be the nice round number of $100 based on the height of the open side of the triangle added onto the level at which the stock broke above it.
With a stop below today’s low, around 90, that’s better than a one/two risk/reward ratio.

VSEA and its buyers laughed off my resistance line and bought heavily today sending the stock up almost 8%. It’s a bit far for my blood to jump in now. This is one heck of a volatile stock. The front month Implied Volatility is 40% compared to 12% for the SPX, 18% for the QQQQ and 22% for the SMH. One lesson to learn from this one is to pay close attention to stocks that are holding up well while the market is dealing with selling and volatility.

Finally, to give Starbux a bit of attention since it’s been discussed actively on the list, here is a long term, weekly view.


Looking closer at the daily chart, it’s amazing how similar this double bottom reversal pattern is to the last time the stock made it down to this support area. When the second bottom was formed with a Morning Doji Star (but not exactly – no gap down to the Doji), you can see how the volume came in strong the next day. I’ve circled the formation with the smaller circle inside the bigger double bottom pattern.
In any case, as Jim and Basant discussed in their exchange, it does seem like a wait for a bounce off of new support around 31 would be prudent. There is potential resistance overhead in the 33 area and the stock has moved dramatically in the last week alone. Regardless, today was a very bullish candle with volume increasing each of the last two days.

(Not to self: Be Brief or be brilliant.) ;-b

[Update: Just as I finished this post, I read another blog with recent mentions of SBUX. LOL! It’s wonderful to see that there are always people seeing just the opposite things in the market.
Here’s a guy with what seems like a pretty respectable blog for worthwhile reading. The 2nd and 3rd most recent posts are on SBUX and his case for a long term double top. Could be.]

Matt

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