Friday, December 19, 2008

End of Day/Week 12/19

It took great self-restraint, but instead of writing a seven page rant about the ills of government intervention, I focused my energy on writing about solutions. It’s not easy; in fact real solutions are very difficult to accept. People are still in denial and until it becomes perfectly clear, real solutions may sound unnecessary or even “out there.” People hate change, but change is coming, count on it. I just don’t think you’re going to want an America that is even more controlled by the current crop of private central bankers.

For the day the DOW lost 25 points (-.3%), the S&P finished well off its highs but managed to gain .3%, the NDX gained 1%, and the RUT gained 1.5%. Noteworthy is that the SPY finished down 1.23%, and the DIA finished down 1.16%. The dollar was higher on the day, gold was down.

It's possible that today's action may have produced a small change in the McClelland Oscillator; I'll have that data later. Once again the indices failed to close over the 50 day moving average.

The weekly charts produced another spinning top candlestick just like I showed earlier today.

Below is a 6 month daily of the Diamonds, DIA (DOW ETF). Note the blue arrows I drew in. They are telling the story more than anything else. When the declines are happening volumes are rising. When rallies are in progress the volume falls off until that price level is no longer supported and then we collapse to the next lower level. Does it look like that trend has changed? Want to bet on it?! If you are long equities, you are. Go ahead, look at the entire chart… rally equals no volume, sell off equals increased volume – volume confirms price. Also on that chart note the new sell signal on the stochastic and the failure to maintain a level over the 50dma.

Next let’s look at the VIX. Below is a six month daily view. Again, just like I mentioned earlier a hammer was formed right on the lower Bollinger. Normally that would be a reversal indicator, however, if you look further back in the year (not pictured here) you can find two examples where the VIX declined further after similarly producing one of these. We’ll see, I think that urges for caution if you’re long the market.

This next chart is a six month view of TLT (20 yr. bond). It is still in its upper range but managed to get back beneath the daily upper Bollinger. Volume is diminishing on rising prices the past 3 days, but on the shorter time frames it may be tracing out another triangle pattern. Still watching this closely, still in the trade short. Noteworthy is that there were times today when equities were moving down at the same time that TLT was moving down. That’s a trend you do not want to see continue for long, but that’s exactly what happened following the first year of the Great Depression. I know there are those out there who believe that bonds will not crash this time – I am unconvinced. I see a parabolic chart and I see foreign inflows moving down. Yes, the government can print and buy their own debt, but at some point the unintended consequences will catch up to that fantasy. Maybe it’s not today, but it’s not 40 years out into the future, that I can guarantee you.

Finally, let’s look at a one month SPX daily. Again, note that we threw a pin at the 50dma but failed to close above it. There’s a fresh sell signal on the stochastic. Also note that it slammed into the bottom boundary of our new orange triangle which is getting further away from the light blue bear wedge (the DOW is beneath this same triangle). The double red lines are the inverted H&S neckline. On the SPX we finished the week above the neckline, but on the DOW we finished on the other side. Then there’s the same old dark blue lines that make up the old triangle I’ve been talking about for the past 3 months… the lower boundary is now at 862 and prices have not been allowed to deviate far from that line.

So, the big picture from my point-of-view is that we are simply killing time before the decline continues. We were deeply oversold after crashing more than 50% in the past year (twice as fast as the year 2000), and the technicals needed the time to catch up. The bulls on teeeeveeee will tell you that it’s a great sign that we haven’t been collapsing under the weight of such horrific economic data. “It’s a GOOD sign,” they say! Yeah, okay… hand them your money if you want – enjoy the donation to Wonderland, Alice and the Mad Hatter will take good care of it for you!

I’m working on a couple more articles, and I’ll post important news if it develops. Today’s bank failure Friday, we get to see if we can catch Paulson in yet another lie, this time inside of one week!

Have a good weekend,