Monday, January 26, 2009

End of Day 1/26

Another whipsaw/ head fake day, which leaves us still stuck in the range between 800 and 850 on the SPX. That’s the type of action that can lead to a small change in the McClelland Oscillator, I’ll check that data tonight… if it was a small movement, we can expect a large movement soon but direction unknown from that indicator.

On the day, the DOW finished up 38 points, the S&P was up .6%, the NDX up .7%, and the RUT gained 1.3%. The XLF finished DOWN 1.8%, anchoring the market once again, still no sign of capitulation in the financials.

Internally, the number of new lows contracted sharply, and advancers led decliners by about 2 to 1.

Be careful interpreting the housing sales and inventory data a good… again, a lot of it was foreclosure sales and some of the inventory pullback was banks removing their inventory from market listings.

Today there were 74,000 job cutbacks announced in total… TODAY.

Tomorrow the Fed begins its FOMC meeting to discuss interest rates. Ha! That’ll be nothing more than a wordsmithing exercise. They announce their new wording on Wednesday. Redbook and Consumer Confidence numbers come out tomorrow, and the GDP data is the biggy that comes out Friday. A lot of other data too, I’ll update as we progress, it’ll be a busy week.

Just a few charts tonight, let’s start with the DOW daily. Here is a spinning top candlestick, an up day on low volume. This shows that the bulls mounted a charge, but the bears took over. Significantly, though you can see that it did close above the triangle and wedge, but still right in the middle of the same range.

Same picture on the SPX. That candlestick doesn’t look bullish, but could have been if it was a completed inverted hammer. Spinners like that show indecision and can sometimes be tops or sometimes prices can slide up the stem as if it were an inverted hammer:

That’s why I look at the SPY to confirm what its saying. Here, it’s not even close to a hammer and again you can see rising prices on lower volume:

Next is the NDX. Techs tried to rally above the 50 day moving average (green line) but got stepped on and it closed right on it, same candlestick:

When we look at a 10 minute chart of the NDX, we see a four day up channel and a broken triangle to the upside. I also, however, see a small bearish divergence… you can see the blue down slopping line on the RSI bottoms, look at the last three lows and compare those to the last three lows in price directly above. While price has been moving up, the RSI just made a low that is significantly lower – that’s bearish in the short term.

All the short term stochastic indicators finished in the middle of their ranges, so not a lot of clues there. The most bullish thing on the day is that the VIX broke beneath the 46 level and failed to regain it.

TLT and bonds continued to collapse down the backside of their parabolic curve. The TNX (10 year) closed up but right on its 50 day average. They have come a long ways in a short time and may need to take a little bit of a rest, but once things get moving on the backside of exponential breakdowns, they can move pretty fast and pretty far. Not a biggie if you own short term treasuries, but long term bonds are suffering.

The Transports were extremely weak once again. They made a new low and tried to make a run at the November pin lows but failed to get beneath them – eventually closing right at Friday’s level basically even for the day.

Overall a head fake higher followed by continued weakness. There needs to be some catalyst to move the market higher and it has not yet appeared. The longer we keep making runs down at the 800 level, the more likely that we’re going to break it one of these days, but first we are in a small uptrend channel and must break from that. That channel is rising steeply and will be up to about 839 by the open tomorrow. If we don’t rally pretty good overnight we will be beneath it. By the close tomorrow it will have a bottom of 845 and a top that is WAY up there, like 865 plus. While it could happen, there would have to be catalyst and so far it hasn’t been there, the financials certainly haven’t provided it. That range does, however fit if we have not completed wave 5 up of this move off the bottom and up the channel over the past two days.

Remember that my technical work last week said that the triangles and time relationships indicated a possible move out of this range on Tuesday or Wednesday this week. The direction would classically be down as this entire movement still looks like a wave 2 type of flat formation – but despite that, there are still many people looking long and they may yet be proven right (short term only if it happens). I went out pretty neutral at the close, but mostly cash and plan to spend tomorrow writing more than trading, unless we break the range one way or the other. I’ve been writing an article on inflation/ deflation and would like to get it out soon.

Hope you have a great evening,


Here’s a mellow & short guitar piece for your evening econotune…

Jefferson Airplane - Embryonic Journey: