Friday, December 12, 2008

Morning Update 12/12

Good Morning,

DOW futures are down 250 points this morning after hitting 8,200 last night and then bouncing. The SPX hit the 830 area and is now about 843.


This deal with Madoff is potentially very bad. Hedge funds are already squealing, I can see this leading to more liquidation and deleveraging.

Producer Prices fell 2.2% in November, more than forecast. A lot of that is fuel costs, but it is reflecting the deflationary forces at work.

Retail sales fell for the fifth straight month, down 1.8% in November from October. Remember, November is the start of the holiday shopping season – that’s very weak.

And, of course, we can’t forget about the crisis du jour, the automakers… Let’s not forget that the government just gave them $25 billion not too long ago. That was a mistake, and “lending” them another $15 billion or letting them turn themselves into banks and exchanging bad loans for good money simply would not have been good for America. The question now is will the current Administration jump in and just give them the money?

Regardless, it’s going to be painful and a tough road ahead, just as it would have been regardless. NOW, IF WE CAN ONLY STOP THE INSANITY WITH THE BANKS!


NOT GOOD. On the SPX 3 month, chart below, note that the 840/850 level is a pretty clean break of the bottom light blue line, the bear wedge. The only thing bullish in that is that the 820 area has held so far. Thus, it’s still possible to consider an a-b-c in tact, and you could argue that wave ‘c’ had yet to occur and still is coming. Yeahhhh, okay, it’s possible so I’ll leave it on the table, but the charts are talking and that’s not what I’m hearing. I think when you look at the XLF, the Transports, commercial real estate, the small caps, and tech stocks, the picture look more bearish. The volume pattern is also bearish and note, too, the fresh new sell signal on the daily SPX:

Let’s look at the 20 minute SPX below. You can see that we clearly broke the bear wedge and the descent last night stopped at 830, thus NOT breaking the 12/5 low… so if we bounce from here we will have produced a higher low which is bullish, but we’ll see. So far it has bounced back up on top of the red down sloping line from September. The stochastic is pretty deeply oversold at this level.

And let’s not forget that ominous triangle on the VIX, today’s action will plant us further back up into it – scary bearish if that triangle eventually breaks higher.

I did go short yesterday afternoon, I took half profits at the close yesterday and may take some more here, but will be looking at the short side some more, especially if we come back up and “kiss” that blue bear wedge line.

Either way, I still think it’s a time to be careful here. Yesterday was the Thursday before options expiration which is next Friday. The rule of alternation (about 70% reliable) says that when Thursday is down, the week of options expiration is up.

Fresh sell signals on all the major indices daily stochastic, fresh buys on the weekly… still cross currents.

Little bit of a bounce going on, the DOW is now down 215, the S&P is at 850.

Have a good a day, and best of luck to your trades,