January 17, 2012 Dow analysis

I have been asked where do I stand since my last post, since I hadn't written anything for 10 days here. Well, the reason I haven't posted was because nothing has really changed for me to comment on. So what I have done is to put a 1 year chart up of the Dow and you can see we still have not broken above this line to have a breakout. We get closer but no real conviction. Here's the chart below:

If and when we do have a clearer picture of where we might be headed I will post something to that effect. But we could be in this never land for a while as Europe tries to straighten itself out from their Sovereign debt crisis. Greece is on the brink of succumbing to default any time now.

Market comments for May 19th

Initial Jobless Claims were reported this morning and Futures rose on the news, signaling a good day in the stock market. Here's the news. You tell me if it is good news.

Initial Jobless Claims came in at 409K, as reported this morning. That was down from last week's reported number of 434K. However last week's number was revised upward from 434K to 438K. Expectations (and hope) were for 400K or under because it was below 400K for a number of weeks.

So this was the good news on which the Futures rose this morning.

In other news this morning, the IMF chief, Dominique Strauss-Kahn, resigned his job to focus on the rape charges he is facing. President Obama will deliver a Middle East speech today dispelling any doubts that the U.S. supports the call for change.

I have added a chart of the Dow for the past year as it is instructive. Notice the Red uptrend line connecting all the low points. As long as the Dow stays above this line, the uptrend continues. You will also notice that there is a short Blue, which shows the most recent decline. Both this line and the Red line point to the axis at 12,450. This is the equilibrium point between the downward forces and upward forces. The upward forces have had and still have the upper hand until we break below the Red line. The longer Blue line connects all the tops of the move up this past year. You will also notice that since April, the Volume has picked up and this coincides with the recent decline phase we have been in.

How one Option moved over this volatile period.

I wanted to show you how the value of the TZA Options I purchased on the morning of May 1st, moved over time and the effect of the market turmoil last week on the price and gains. (I have also included 2 charts. One is for the period of 1 week and the other is for the past Month.)

Call Options on TZA for October 16th expiration taken at various dates.
4/30/10
Last Bid Ask Tot. Vol. Strike Price

TZA 1.87 1.74 1.88 1,987 4.00 Strike Price
TZA 1.32 1.21 1.29 1,107 5.00 Strike Price
TZA 0.97 0.91 1.04 4,455 6.00 Strike Price
TZA 0.89 0.72 0.78 3,443 7.00 Strike Price
TZA 0.75 0.58 0.69 498 8.00 Strike Price
TZA 0.64 0.50 0.58 1,408 9.00 Strike Price Purchased my contracts at $0.58
TZA 0.49 0.43 0.50 4,610 10.00 Strike Price
TZA 0.52 0.38 0.46 164 11.00 Strike Price
TZA 0.47 0.34 0.41 178 12.00 Strike Price
TZA 0.45 0.30 0.37 48 13.00 Strike Price
TZA 0.38 0.27 0.34 629 14.00 Strike Price

5/7/10
Last Bid Ask Tot. Vol. Strike Price Percent gain from 4/30/10
TZA 3.80 3.60 3.85 1,968 4.00 Strike Price 103%
TZA 3.10 2.96 3.25 1,204 5.00 Strike Price 135%
TZA 2.51 2.51 2.74 4,877 6.00 Strike Price 159%
TZA 2.22 2.16 2.30 3,449 7.00 Strike Price 149%
TZA 1.95 1.90 2.01 565 8.00 Strike Price 160%
TZA 1.74 1.68 1.79 1,549 9.00 Strike Price 172%. My gain was 190% because of lower purchase.
TZA 1.56 1.55 1.61 5,476 10.00 Strike Price 218%
TZA 1.25 1.36 1.47 340 11.00 Strike Price 140%
TZA 1.27 1.21 1.37 200 12.00 Strike Price 170%
TZA 1.13 1.15 1.26 43 13.00 Strike Price 151%
TZA 1.05 1.04 1.18 829 14.00 Strike Price 176%

As of the close today, most all were down between 12% and 38% with the one with a Strike Price of $11.00 had no change. I expect these to regain the losses that happened today as it is a long time between now and October expiration. The Strike Price of $10.00 for October seems to be attracting the largest trading volume. I would say the $9.00 Strike Price gave the second best return of these so far.

So the minimum gains are still over 80% for these and as high as 157%. I will look for any further rise as an opportunity to add to my Call Option positions on TZA.

I have been asked if this trend down is complete now and if we are starting a new trend up. My belief is that we may go up again a bit tomorrow, but this downtrend line, which started about a week ago will continue. We will zig and zag, up and down, but the pattern should become clearer in a week, when May Options expire on May. 22nd.

Nov. 6th, 2009. Are we headed up now that yesterday had such a big day for the markets? UPDATE

What now? That is the question. My close friend said he thought we broke the 3 year downtrend line yesterday. As you can see from the Dow 3 year chart above, we didn't. we are still in that tight wedge area on the right and could go along in this area for another 3 weeks at least without a breakout. But as each day passes with no clear breakout, to me it signifies the strength of this red line above. If it weren't that meaningful, then why haven't we easily broken above it? The reason is because IT IS MEANINGFUL to at least the 40% of analysts which are technical chart readers lime myself. Those analysts advise their company's who place all bets. And if you look at the S&P 500 chart, you can see if anything we may have broken below the support line a few days ago when there was the big selloff.

Look, I heard on CNBC that the Fed, and Chairman Bernanke himself, don't really believe in the recovery they have proclaimed these past 2-3 months. That is why there is no hurry to even signal interest rates are going to go up anytime soon. With the Unemployment rate at 10% and the real unemployment at about 17%, there amount of squeezing by companies to get some profit will continue. That means, unfortunately, even higher unemployment. With the Congress about to extend Unemployment benefits again, the those Unemployment numbers will rise as more are counted again who were dropped from the counting.

If you believe the recovery is real, I have a "bridge to no where" I would like to sell you. And remember this, when there is a breakout to the upside, I will be the first to proclaim it, even if it doesn't fit where the real economy is. That I promise you!

UPDATE: 5:35am PST

Unemployment reached 10.2% for October, up from 9.8% in September. Non Farm Payrolls were down 190,000 jobs.

UPDATE: 6:50am PST
Market opened down about 50 points but then after a half hour of trading, went positive. Confused yet? Why is bad news for Main St. good news for Wall St? They may think we have peaked at 10.2% Unemployment and I expect it to go over 11% anyway so that's a long time yet to play out. I see more Small Businesses closing and laying off more people as their reserve cash becomes depleted. They can't get money from banks as the banks are hoarding still.