Monday, January 12, 2009

End of Day 1/12

That was a pretty good sell off today, led by the financials and commercial real estate.

For the day the DOW lost 125 points, the S&P gave up 2.3%, the NDX lost 1.8%, and the RUT wound up losing the most, off by 2.6%. Notably, the XLF lost 5.3%, and IYR lost 5.8%.

VERY important today, all the indices, the S&P, DOW, NDX, RUT, and even transports closed BENEATH their 50 day moving averages.

Citigroup lost 17% and Goldman Sachs lost 7.5%. Here’s an interesting 20 day chart of GS, note the H&S pattern that broke down… it had a target of 75ish and it basically hit it today. If it moves sideways from here and makes a right shoulder, there’s potentially a larger H&S pattern in play – looks like it will need some time, but worth keeping an eye on.

Below is a 20 day SPX chart. We made it all the way to 864 and closed right on that same old blue magnet line, the bottom of the old triangle. Note the fresh buy signal on the 20 minute stochastic. The odds favor some gains or some sideways action to work off that short term oversold condition.

More selling is certainly possible, though. Next up is the DOW daily that shows room still to go on the daily stochastic and a higher volume down day today, as was the XLF. Note, too, that we are well beneath the 78.6% retrace with the next support level at 8,362, which is getting close to the bottom Bollinger band, and the stochastic fast will be close to oversold if we make it there. Notable is that the DOW closed beneath the 200 MONTH moving average today on the long term charts.

Next up is the XLF. That’s a pretty ugly 1 month chart. Note the higher volume and how it closed beneath the daily Bollinger with the stochastic oversold already. That’s a potential long play, but it could very easily keep on trucking in oversold and can push that Bollinger down and out of the way. I personally won’t go long the XLF, the fundamentals do not support it and that volume pattern confirms the sell off. This is tough for the entire market, there’s just no way it rallies when the financials are doing this. Citibank is in trouble, heck, they all are:

I’m still working on a full length article about the bond market but let me say that TLT, the TNX, and /ZB (long bond futures) are all right at the top/bottom of their respective channels. I’ve been scaling into TLT puts, but a move higher tomorrow in the bond market will force me out – again. There’s still the possibility that the parabolic phase is not over, but boy do I see a chart pattern that makes it look like it is. I’ll try to get that out soon, it’s turning into a larger project than I originally thought.

Overall I see a mixed picture in this location and am not willing to commit money either way right here. We're getting close to support and are oversold, but the financials and reality are a drag. We need to break out of this range before I get more aggressive, a break beneath SPX 855 and there may be a case made for going even lower.

The VIX, btw, landed right on resistance at 46 which stopped its advance. It finished up a strong 7% on the day.

Alcoa just reported, they missed on earnings but revenues were higher, which may be a one time deal. Don’t have the details yet, but it’s a reminder that with earnings season in swing, tape bombs can come at any time.

Also, this is options expirations week, so fun and games usually happen.

Have a good evening,