In an interview on Fox Business News last Monday, I pointed out the same three levels of resistance to Fox viewers that I pointed out to IDE readers earlier that morning (it pays to subscribe).  One thing I did on Fox that I didn’t do in IDE was make a recommendation, so I feel like I owe readers something.  My recommendation on Fox was to buy the ProShares UltraShort S&P 500 ETF (NYSE:SDS).  I still think this is a good pick and I think it could jump 30-40% over the coming weeks.  As a bonus pick, I think you can make every bit as much with the QID, which is the ProShares UltraShort QQQ ETF (NYSE:QID).

After looking even closer at the charts, I noticed what appears to be a very well defined inverse head and shoulders pattern.  Look at the weekly chart below to see the different parts of the formation.

One thing that strikes me about this chart so far is the symmetry of the move from the neckline to the head and from the head back to the neckline.  Each of these moves lasted nine weeks.  It doesn’t have to be that well defined to fit as an inverse head and shoulders pattern, but it struck me as interesting.

So where does this leave us?  It looks to me like the S&P will decline over the next 7-8 weeks and then should start to find support near the 750 level.  If the 750 level holds as support and we start heading higher again, you could play the up move for about six weeks or so and then see what happens after it reaches the 950 level again.

If all of this pans out the way I think it will, the end of this year could see an explosive move to the upside as it breaks above the neckline.

The thing about head and shoulders patterns is that you typically want to wait and play the break above (on an inverse) or below (on a regular H&S).  The big move comes after the pattern is complete.

In the interim, you can play the short side as I think the three resistance levels I talked about last week will be too much to overcome when the S&P is as overbought as it is on the daily and weekly charts.  We move down again, the moving averages have time to catch up, and we won’t be as far below the 52-week (360-day) moving average as we are now.

We saw a similar pattern develop in the 2000-2002 bear market.  It wasn’t as clearly defined as the one we are seeing develop now, but it was there never the less.

Be patient, the biggest gains are yet to come.  The rally from the March low was very enticing, but there is even more money to be made if this plays out as I think it will.

Good luck and good trading,

Rick

Source: Classic Chart Pattern Predicts Bad News Followed By Good News

In an interview on Fox Business News last Monday, I pointed out the same three levels of resistance to Fox viewers that I pointed out to IDE readers earlier that morning (it pays to subscribe).  One thing I did on Fox that I didn’t do in IDE was make a recommendation, so I feel like I owe readers something.  My recommendation on Fox was to buy the ProShares UltraShort S&P 500 ETF (SDS).  I still think this is a good pick and I think it could jump 30-40% over the coming weeks.  As a bonus pick, I think you can make every bit as much with the QID, which is the ProShares UltraShort QQQ ETF.

After looking even closer at the charts, I noticed what appears to be a very well defined inverse head and shoulders pattern.  Look at the weekly chart below to see the different parts of the formation.

One thing that strikes me about this chart so far is the symmetry of the move from the neckline to the head and from the head back to the neckline.  Each of these moves lasted nine weeks.  It doesn’t have to be that well defined to fit as an inverse head and shoulders pattern, but it struck me as interesting.

So where does this leave us?  It looks to me like the S&P will decline over the next 7-8 weeks and then should start to find support near the 750 level.  If the 750 level holds as support and we start heading higher again, you could play the up move for about six weeks or so and then see what happens after it reaches the 950 level again.

If all of this pans out the way I think it will, the end of this year could see an explosive move to the upside as it breaks above the neckline.

The thing about head and shoulders patterns is that you typically want to wait and play the break above (on an inverse) or below (on a regular H&S).  The big move comes after the pattern is complete.

In the interim, you can play the short side as I think the three resistance levels I talked about last week will be too much to overcome when the S&P is as overbought as it is on the daily and weekly charts.  We move down again, the moving averages have time to catch up, and we won’t be as far below the 52-week (360-day) moving average as we are now.

We saw a similar pattern develop in the 2000-2002 bear market.  It wasn’t as clearly defined as the one we are seeing develop now, but it was there never the less.

Be patient, the biggest gains are yet to come.  The rally from the March low was very enticing, but there is even more money to be made if this plays out as I think it will.

Source: Classic Chart Pattern Predicts Bad News Followed By Good News

Rick Pendergraft says no bailout can immediately solve the problems in the housing market. And all indicators suggest these will run well into 2009 at least.

Rick says your portfolio should be all about playing safe for now. He recommends eight inverse ETF plays to hedge against this downside risk.

This from Investor’s Daily Edge:

I can understand the fixation on the bailout, but other economic reports are getting lost as a result.

Last Thursday was a day that the mass distraction was working to its full capabilities. Investors chose to ignore all economic data in order to focus on the progress of Congress.

In case you missed it, durable goods orders for August were down 4.5 percent from July (I guess the stimulus checks ran out), initial jobless claims jumped to 493,000 (the highest figure in seven years), new home sales dropped to a 17-year low and home sale prices dropped 11.8 percent (the largest drop on record).

But the bailout is going to solve all of this and it will do it immediately, right?

I don’t think so. Companies are not going to start borrowing tomorrow and banks are not going to start throwing money at people all of the sudden.

Granted the bailout should help stabilize things and keep us from going into an all out meltdown, but it is not going to fix everything and it isn’t going to do it immediately.

I hate to sound like such a doom and gloomer, but if it’s cloudy outside, I am not going to tell you that it’s sunny and hope that you don’t notice.

Last Wednesday, we had a company wide meeting and we were all asked to state what our goals were for each day. My answer was in two parts: my goal is to make my readers money or educate them. It’s that simple.

Having said this, should a bailout agreement get reached before you receive my article this morning (they are feverishly working on it), expect a rally when an agreement is reached and it is approved in congress. But don’t go buying into the rally.

I think this is going to be another case of buy the rumor and sell the news. Any agreement that is reached will cast a sense of relief for the financial sector, without a doubt. However, it isn’t going to solve the underlying problems with our economy.

We will continue to see job loss in the coming months (the September employment numbers will be released on Friday), consumers will still struggle to keep up with their obligations and the housing market will continue to slip for the foreseeable future.

I have expressed in IDE many times that I don’t think the economy turns around until the housing market turns around. Based on the housing reports last week and the inventory of homes on the market, housing isn’t going to rebound in 2008. My guess is that it will be at least the second quarter of 2009 before we see housing start to stabilize, and then the second half of the year may produce an actual upswing in housing.

Until the economy starts showing some improving vital signs, your best bet with your portfolio is to play it safe. Keep part of your portfolio in cash and use part of it to play the downside.

A few weeks ago I mentioned inverse ETFs as a way to play the downside. I received an email from Joan K. asking for a list of inverse ETFs, so for Joan and all of your benefit here is a short list.

ProShares Ultrashort QQQQ-QID
ProShares Ultrashort Dow 30- DXD
ProShares Ultrashort S&P 500- SDS
ProShares Ultrashort Russell 2000- TWM
ProShares Ultrashort Semiconductors- SSG
ProShares Ultrashort Financials- SKF
ProShares Ultrashort Basic Materials- SMN
ProShares Ultrashort Technology- REW

If you want to hedge your portfolio appropriately, you can buy the inverse ETF that most accurately depicts the rest of your portfolio. For instance, if you own numerous technology stocks, to hedge your portfolio you can buy the QID or the REW. The REW is the leveraged inverse technology fund, but the QID should also gain if technology stocks continue to drop.

Source: Once Again, Wall Street Gets Distracted