Chart of the Week (and decade)

Mitsubishi UFJ Financial Group, Inc. (MTU)


I first found the idea of Japanese banks as a good bet for 2010 from the blog THE OIL TRADERS BLOG. I then delved into some charts and found the technicals to be quite impressive. I decided to post this one as the "Chart of the Week or(more like decade) which shows a massive possible trend change. It all makes sense in the respect that the Japanese Banking Crisis happened in the late 80's early 90's. Our banks dominated the last 20 years and arguably longer but the tides may have shifted and put Japan's financing in the lead going forward - we'll see.

Here is a chart of Mitsubishi UFJ Financial Group, Inc. MTU which shows a massive Long Term trend shift in the form of a Head and Shoulders bottom.





Other tickers he mentions are MFG, NMR.

AUY vs. MU

Here is a view of why the short early cycle/long late cycle may be quite profitable in the short term and also give you a bit of downside protection.

AUY Channel

The objective is to expect a bounce to the median channel and even the upper band. Watch for breakdown at support channel. If it breaks, strategy will have to be re-evaluated.





MU Channel

*Notice it is in the median of its channel - it can still thrust to that upper channel and then create the downside correction/consolidation period.




The looming risk in this trade is if AUY breaks down at trendline(it can happen) and MU keeps going - that would hurt, but worth the risk.

Watching the leaders for "The Shift"

I first wrote about the coming secular bull market in the semiconductor space in the 2008 article THE OTHER COMMODITY. In it was the first pitch on the idea that a secular shift was occurring in the Semiconductor space, and more specifically the Philadelphia semiconductor index (^SOXX).

Well, almost 2 years have passed since that article and we are still showing signs that this huge turn could be manifesting, although the first purge may be coming to an end.

In this article I will demonstrate that the current bull move for the Philadelphia Semiconductor Index could be coming to a end and a medium-term corrective trend could begin - meaning we could see a 6-9m downward consolidation phase.


Is the bull alive and well in Semi land? - Yes, by all means this is just the first pitstop where one should protect profits, scale back, and even use this current move to add to the strategy of long late cycles, like energy and gold, and short early cycles such as Semi's.

Here are a few charts to contemplate this theory that we may get a 15-25% correction in Semi stocks soon.

Semi Index hit my resistance zone and is showing what could be a Long Term WAVE 1 completion, with a corrective WAVE 2 coming, of ELLIOT WAVE THEORY.



I like MU as the best overall technical play. I posted about the CHANNEL BREAK below which showed the reversal of that trend.





But things are shifting, and I am now looking what could be the completing of a WAVE 5 count. This coincides with the Semi Index completing the WAVE 1 of the index above.





In essence, the current move off the bottom could be coming to completion. At what price this happens is still up in the air as these type of capitulation things can go farther, faster than you think, but over the next 6-9months, prices will be at best flat in this space, and probably experience a 15-25% correction.

This would bode well for a short early cycle/long late cycle risk adjusted strategy. This by no means means the end of the secular trend is over, but rather if you want to try and time the market, this is a place to try.

Always enter at your own risk, but with MU up almost 250%, I'll take those chances.

Chart of The Week

L-1 Identity Solutions Inc. (ID)

TIMEFRAME (3-6weeks) Target $8.50 - $9.50




Stop Loss at Trendline.

For the New Year! Happy 2010!

Happy 2010! After quite the year, not to mention decade, for the markets, Pollux Technicals would like to note some changes to the format styling this year.

CHANGES for 2010

1. I will now post a weekly stockpick type of blog - I will name it something later.

2. I will be setting up a twitter account for more realtime thoughts and updates, current momentum plays, and general market stuff.twitter.com/Pollux Technicals


3. I will add a montly analysis of a different world market.

4. I have also started a Facebook group - Become a fan!! Pollux Technicals

There may be more changes to come.


Pollux (β Gem / β Geminorum / Beta Geminorum) is an orange giant star approximately 34 light-years from the Earth in the constellation of Gemini (the Twins). Pollux is the brightest star in the constellation, brighter than Castor (Alpha Geminorum). As of 2006[update], Pollux was confirmed to have an extrasolar planet orbiting it.

The name Pollux refers specifically to Castor and Pollux, the sons of Leda.[1] The star also bears Arabic name Al-Ras al-Tau'am al-Mu'akhar,(الرأس التؤام المؤخر), literally, 'The Head of the Second Twin.' Historically, the Chinese recognized Pollux as Yang, which in ancient philosophy was one of the two fundamental principles upon which all things depend. Castor and Pollux together correspond to the Nakshatra Punarvasu in Hindu astronomy.

Castor and Pollux are the two 'heavenly twin' stars giving the constellation Gemini (Latin, 'the twins') its name. The stars, however, are nothing alike. Castor is a complex sextuple system comprised of hot, bluish-white A-type stars and dim red dwarfs, while Pollux is a single, cooler yellow-orange giant. The name is traditionally thought by some people[who?] to carry the meaning 'much wine,' since astrologers associate Pollux with prosperity and celebration with wine

Assessing the Gold Breakout

Gold has broken a major resistance line, now what? This blog will dissect the gold breakout and the strategies that have arisen. Lets look at four different cross-currents of technicals on the GLD.


1. Continuation/Bottoming Patterns.

2. The Throwback.

3. What it all means in the market.

4. How to trade it.

1. Continuation/Bottoming Patterns:


We'll first look at the different technical patterns that have been called on the current consolidation/bottoming pattern of the Gold, replicated by the GLD, and discuss their respective calculations for price points.


Head and Shoulder(they are not usually continuation patterns)



There are many out there who have seen the head and shoulders pattern in the GLD - although HnS formations are usually bottoming patterns, not continuation. Measure the height of the head at top/bottom and add/subtract that from the neckline. The current values and calculation for the GLD would be: {100(Neckline)-75(Head)}+ 100(neckline) = 125 or approximately $1,250 for one ounce of Gold.

Flag Pattern

The flag pattern is a continuation pattern. There have been many calls that the current consolidation is a flag pattern. The calculation is to subtract the breakout point price from the price at the top of the consolidation of the flag formation. Add that # to the breakout of the consolidated flag. The current values and calculations for GLD are: 100 -65 = 35. Add that to 80 which gives you 125, the same value as the H n S bottom.

2. The Throwback



When a stock breakouts through an old resistance price it will usually come back and test that resistance as support. This is known as a "throwback". Also notice that this breakout move could begin an Elliot Wave count.












3. What does it all mean for the market?



An important divergence that seems to have been developing - Gold/Gold stocks have been outperforming the early cycle sectors in the past 4-6 weeks. There is a 20% difference in the 6 month performance of the AMEX GOLD BUGS INDEX(AMEX: ^HUI) vs. Dow Jones Transportation Averag(DJI: ^DJT) and the (Philadelphia Semiconductor Index: ^SOXX).







Gold's breakout has also increased the volatility of the markets. This is usually indicative of tops and bottoms and means the markets will get more volatile in the short term. The market can thrust higher in this volatility - a blowoff top if you will, but the VIX, although it has been sleeping in its den, can wake up and give us a scare, albeit much less then the VIX during the market crash.







Also remember that in the economic cycle, commodities move last - this also backs up the theory that the market is nearing the end of its current trend, as commodities have been on fire. It doesnt mean we cant consolidate for 6-9 months with a 10-15 percent corrective range(which presents great opportunities as a trader)before making another leg higher sometime in the summer/fall of next year. Which would probably sit gold at 1400-1500 and ready for a large correction.




4. How to trade it.

The throwback in the price of gold could hold the crucial element for the soon coming "real" market correction. On the breakout of Gold we have seen the volatility of the market increase which is warning you of something to happen. This could mean another leap higher in the market on the current breakout of Gold prices - creating a blowoff top of some sort for the markets and finishing the Wave 1 and moving into the Wave 2(throwback) of its trend. When gold corrects at around 1200, the market should begin the correcting and stagnating phase of inflation.

A 2:1 long/short model weighted long gold/silver stocks and short early cycles like semis and banks could bode well for a managed risked portfolio. This strategy should work during the current breakout of gold to around 1200. Once that manifest's, you would want to be less long gold/gold stocks and tilted short on the early cycle sectors and shifting to a 1:1.5 long/short strategy.


A further strategy will have to be evaluated once and if we see any of the first 2 strategies manifest. You'll have to assess the inter-market relations at that time to see how to realign one's holdings.

NEW UPTREND CHANNELS

First things first: find the trends and make sure you are on the right side of that trend. Below are 5 stocks with clear uptrends. I only include 5 because one should only stick to a handful of stocks and leave the rest for research. If you try and own or trade too many stocks, this can lead to overtrading which reduces profits due to trading costs, margin calls, inability to make clear and decisive decisions, etc.

So, sometimes it is more efficient to find 5-7 stocks and stick with them. Find your favorite stocks based on clear signals from your favorite technical indicators and with a clear uptrend/downtrend. Trade those stocks based on the trend lines - buy at bottom of trend, sell at top. Only introduce another stock if those favorable signals show signs of deterioration along with the break of the trendline.

During this time of trading your favorite stocks, there is always time for research, but the only time to enter into different stocks is if/when your technicals deteriorate and your trades start losing money. If it ain't broke, don't fix it.

I like to use MACD's, STOCHASTICS, MONEY FLOW and ADX indicators for the technical indicators and I always make sure I can identify a uptrend channel. Here are a few of my favorite uptrend stocks that have been working.

COEUR D ALENE CP NEW(NYSE: CDE)




MercadoLibre, Inc.(NasdaqGS: MELI)




FREEPORT MCMORAN B(NYSE: FCX)




MICRON TECHNOLOGY(NYSE: MU)






GOLDMAN SACHS GRP(NYSE: GS)




Notcie the slope of each trend - the lower the degree of the angle, the less profitable and less risk. The higher the degree of trend, the more profitable but also more risk.

NOTE: Whether the market has more to correct or not, these stocks should continue on their trend unless they break through that bottom trendline. Yes, they are associated with the market but new stock leaders will turn before the market bottoms. Notice that many of the stocks have recently tested that bottom trend at a time the market has been correcting.