Thursday, January 29, 2009

End of Day 1/29

Velvet Revolver, Fall to Pieces:

Boy, talk about a rally falling to pieces, that was it. But the truth is that today could have been corrective of the past four days’ rally, taking half of it away in one day – could have. Then again…

The DOW finished the day down 226 points (2.7%), the S&P lost 3.3%, the NDX got hammered for 2.6%, and the RUT was on the receiving end, getting nailed for 4.2% - once again leading the market. The XLF was getting pounded for nearly 8% as it was reported that the aggregator bank idea was running into snafus.

Market internals were wickedly bearish. By my preliminary calculations, it was a 91.5% down day by advancing/declining volume. Issues were 5 to 1 negative on the NYSE and new lows rose substantially over yesterday.

To me there were two clues to today’s action yesterday:

1. I hit on the first one with Lacker’s Fed dissent/comments affecting the bond market. Today was an absolute rout in the long end of the curve. Here’s today’s P&F chart of the TNX (10 year). Note the bullish breakout in yields and the bullish target that says 41.0. That would be 4.1% which is nearly DOUBLE the 2.1% where we just were.

2. The second clue was the Dollar. Remember that I posted the chart yesterday showing the hammer right on the 50 day moving average? Here’s the result today:

Amazingly, today gold gained more than $20 an ounce on a deleveraging day in equities, USO was down 1.8%, and bonds got creamed. Stocks down, bonds down, oil down… gold up. Uh, that’s pretty much the doomsday trade in a nutshell, and it’s what’s worked since the beginning of the year. As they say, “as goes January, so goes the rest of the year.” Well, the bulls better kick it in high gear, because I show the DOW off more than 500 points and the S&P down 6.4% since the beginning of the year, and that’s after being up the first three trading days of the month. Bonds? TLT is off 12.8% year-to-date and down 15.6% from its December high.

Let’s start on the charts with the 10 day SPX. Closed at 845, not quite to the 50% fib, but it did break pretty critical support at 850. I note that the 10, 30, and 60 stochastic fasts are all oversold but the 60 minute slow is just half way down and pointing straight down. The likelihood of a bounce is high, but will be weighted until that 60 minute slow works its way a little further down:

Next is the one month daily SPX. Had we opened higher and then closed beneath yesterday’s candle bottom, it would have been a bearish engulfing candle, but as it stands, it’s pretty much the same thing… bearish and engulfing the entire candle bottom with a close below. NOT BULLISH! Before I leave this chart, however, note where the stochastic is… it would be rare to not reach the overbought line here, but it definitely can happen. Remember all those important Fibonacci lines I showed this morning? Soundly rejected off that point, it was a very critical area and close yesterday. Also note the reject of the 50dma after closing above yesterday:

What happened the last couple of times we had bearish reversals such as this? Let’s take a look at the June 5th and 6th candles of last year… Following that pair, in the middle of the chart, we got two spinners followed by another hard down day:

Here’s another pair of similar candles at the top of a run on September 19th and 22nd. What followed that? A big red candle, a little sideways action, and then one of the worst market crashes in history:

Not enough? In this next chart I highlight last November 4th and 5th candles – which followed the October crash. What followed that was another giant red candle and then it finally settled more than 200 points and 25% collapse further:

To be fair, there are a couple of examples on the chart in the past year of this pair that was followed by a higher close, but none that followed previous advances such as this. Don’t get too bearish on that pair… they are bearish, yes, but hey, AMZN beat and there are still believers in the government’s ability to save us!

Let’s talk volume… I have it turned off on today’s charts so we could see the candles better, but the volume on the DOW was lower than yesterday’s. It was lower but very close to level on both the DIA and SPY. When I go back and look at those pairs, that’s exactly what I see on pairs that were located on tops… high volume black, low volume red, then the volume picks up on the downside later. The early November pair had much heavier volume on the down day. My point being that being a lower volume day today does not negate that pair.

Okay, let’s look at the DOW daily. Closed below the 50% fib, next support 8,100… 8,200 is now overhead:

The NDX filled its gap up entirely and ALMOST produced an island reversal. What’s there to say about that?

The RUT led the way down today, failed to hold its 50dma and pinned the 50% fib line almost exactly (not shown).

Lastly, let’s look at the XLF. That COULD be considered to be island reversal… if we ignore the little pin on top, that is. The body of this candle is completely beneath the body of the prior day. It only half filled its gap. I would think it would be very unusual for it to dip halfway in and finish the job!

Hey, that’s what happens when people buy into the BS that a bad bank is going to save us all. All at once people were seeing how outright nationalization would be a much better deal for the taxpayers… that way they would get the good parts to go along with the bad parts. Sounds fair to me, IF we all want to be socialists, eh, Comrade? Better than just taking their trash, that's for sure. If that happens, current stock holders are ZEROS. Heaven forbid the banks just default and use the bankruptcy laws, can’t have that, MUST DO SOMETHING!

Boy, so many charts, so many signals… the bond market, the dollar, the ugly candles – you might think there’s a message in there somewhere:

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