Friday, December 5, 2008

End of Day/Week 12/5

Huge move off the bottom today, the S&P had a 61 point range and the DOW produced 568 points worth of movement from bottom to top. Amazing volatility.

The DOW finished the day up 259 points, the S&P finished up 3.7%, the NDX up 4.4%, and the RUT was the ballistic leader up 4.86% after being down considerably this morning.

So, we know the fundamentals; horrid employment situation, banks, car manufacturers, and everyone else begging to be bailed out. Yet the bullish technicals overpower to steal the day, but not the week. Remember Monday? It was 686 points mostly straight down. On the DOW we broke Monday’s low this morning, but did not on the SPX. For the week the indices failed to gain back Monday’s losses.

Let’s take a look at the weekly SPX chart to see what’s going on there. This is a 6 month chart, each candlestick represents one week. Note the inside hammer candlestick for the week (red), and the trading range that we’ve been in since the beginning of October. Also note the recent buy signal on the stochastic. People are still talking about that October 10th low like it was THE low (or internal low), but you can clearly see that it was not. In fact, we were beneath that low again this morning.

The next chart is the past 3 months on the DOW with each candlestick representing a single day. Note that the red downtrend line is still holding, barely. The overall volume pattern is bearish, but today’s rise was on higher volume than the rest of the week. Note the stochastics, the fast broke down from oversold but is going back up into it while the slow just chugs uphill. Now scan the entire chart from the 10/10 low on the left to the right and what do you see? I see a price level that has gone NOWHERE, but the stochastics have gone from oversold and are approaching overbought. You can call that bullish if you want to, I call it a time killing pause to work off oversold conditions just like we’ve seen in the past year.

Finally, let’s go back and look at a 10 minute chart of the SPX. In the very short term the stochastic is now overbought as is the fast on the 30 and 60 minute charts. However, we first under threw that triangle pattern and are now above it. Which is the fake? We won’t know for sure until 895 falls on the upside, but the bullish case in the medium term looks pretty good if that level is broken. That would validate the inverted head & shoulders pattern that you can see on a chart with a longer timeframe that this one (you can just see the inverted head at the bottom, far left here).

So, although the fundamentals are a sore sight to behold, the technicals are still saying B wave rally/sideways. The upside for that rally is looking like it would target the 1,000/1,050 region on the S&P. I could probably be talked into a long play on a break above 900, but I would be very cautious if I did.

The VIX is still sitting right at the 60 level which is still very elevated.

Of significant note, TLT put in a reversal top on high volume which produced a fresh sell signal on the daily. That action produced a high volume bottom hammer on TBT, which argues the bullish case for equities here.

Also, the XLF (financials) put in a very positive plus 8% showing today. It looks like it’s making a 3 wave up move that is targeting the $14.50 area, again arguing for more short term upside.

On the bearish side, commodities and the CRB continue to make new lows.

If you caught the turn long this morning, congratulations! I did not, I think playing long in this environment is just asking to get slashed by a storm of falling knives! In times like these, I like to play small or not at all! And, if you’re buying here for the “long term,” Warren Buffett style, well… all I can say is, “Sold to You!”

Have a good weekend,