Tuesday, December 9, 2008

Morning Update 12/9

Good Morning,

DOW futures are down about 50 points this morning. Last night the futures were down more than 130 at one point but came back to life in the morning hours, certainly NOT due to any wonderful economic news – purely a technical rally.

Fedex warned about lower shipment levels and was down almost 9% this morning. Sony announced they are going to layoff 10% of their world wide workforce, of the 16,000 about 8,000 will be in the U.S.. Wyndham Resorts also announced they are laying off about 4,000 workers, while Danaher Corp., a manufacturing company, is laying off about 1,700.

Manufacturing in Britain fell by three times what their “experts” were expecting and their home prices are falling faster than expected too.

Meanwhile, the automaker CEOs apologize, while at the same time beg, disgusting. No, as a taxpayer I don’t want to own their stock, thanks Nancy.

So, like I said yesterday afternoon, from a technical perspective we are overbought in the very short term and thus I expect morning decline/sideways action to work off that condition a little before resuming the climb higher. How far will we sink before resuming? Hard to say, but there is support at SPX 900, 895, 880, and also at 875. If it were to get down below that range then my symmetry with wave ‘a’ theory is probably wrong. We’ll see, the action overnight says that it wants to go higher but the weight of the overbought condition won’t let it get too far ahead of itself. This is typical action following a strong advance. When things, anything, goes parabolic, the weight of it begins to exert pressure. If you look at wave ‘a’ which began on the 21st of November, you will see a parabolic move north which began to shallow out its climb and then finally collapsed. We are now in a little wave ‘c’ and it is looking symmetrical with ‘a’ and thus I expect roughly the same thing only not quite as strong as we are getting elevated to heights that the fundamentals simply do not support – despite what the people who have huge vested positions (cough – Bill Gross – cough) tell you.

If you look on the 30 minute SPX chart you can see that the neckline for the inverted H&S pattern (double red lines) is at about the 880 level as is upsloping support. Note also on this chart how both the fast and slow stochastic are overbought – that’s the condition that needs time to work off.

So, we have many crosscurrents in play here: Buy signal on the weekly, approaching overbought on the daily, sitting up against the 50dma on the DOW getting close on the SPX, overbought stochastic in the time frames smaller than 60 minutes… the waves are overlapping and just like waves upon the ocean, cross currents produce chop. And chop is hard to trade, so I’m not going to try. I’m going to wait for the overbought condition to work off and then look for a long entry. Again, if I do enter into positions here it will be very small, or not at all as playing counter trend rallies can be hazardous to your account unless you are very quick.

And let me be clear - by long, I mean MAYBE to Thursday! Then I expect declines. Of what degree I am not certain, but I think the odds are now high that the inverted H&S pattern target up around 1,000 on the S&P will be fullfilled. But I wouldn't bet a lot on it!

I’ll be publishing another article today titled, “Huh? Interest Bearing Fractional Reserve Money by Fiat. Doh!" I know, dry subject but crucial to understand if we’re going to create a lasting system going forward. So, if you prefer a more jazzy title it is – a.k.a. “Alice Enters Wonderland by Going Down the Rabbit Hole!”
On that, have a good day and I’ll update with anything significant, so check back often.

Futures coming down some more, now down 110 on the DOW.