Monday, January 5, 2009

End of day 1/5/2009

The oscillators finally exerted their influence, but so too did wave ‘c’ up… Let’s not forget the January effect – you know, as goes January, so goes the year. The month is just getting started and when the math is working against you, in the long run it’s the math that usually wins!

For the day the DOW gave back 81 points (.9%), the S&P was off .5%, the NDX gave back only .1%, and the RUT gave back .16%.

The media, of course, will not cite overbought oscillators as the reason for the decline, the reason du jour seems to be auto sales which were bad and Chrysler was the worse of the worse. The December figures were not as catastrophic as expected, but for the year, they were the lowest sales figures since 1992. Are you ready for your home’s value to go back to 1992? You should be.

As I stated in the last update, today’s action appears to be more of a sideways move which would more closely resemble a wave 4, and thus we may be about to experience another wave higher. There are forces working against this, so let’s look at the charts:

Sometimes it’s helpful to look at individual issues that may show what’s happening more clearly than even the index charts. Below is a 6 month daily of Harley Davidson (HOG). Notice how the steep sell off terminated in a ‘V’ bottom in late November (V bottoms are almost never bottoms that hold). From late November, we see wave ‘a’ up, then some sideways action (wave ‘b’), and now wave ‘c’. And there it hangs, a potential reversal candlestick that is above the upper Bollinger band and a daily stochastic that is buried in overbought territory. Yes, it is above the 50 day moving average, and yes, the recent volume has been getting stronger on the rally, BUT compare this rally’s volume to the volume of the ‘a’ wave rally in late November… hmmm. Do we see that same pattern anywhere else? Sure, the XLF looks just like it, only weaker, as does IYR, and many others. I just like the way HOG looks, it looks clean and paints a pretty clear picture. I would contend that HOG is a also a good fundamental representation of our entire economy – a half assed poorly engineered product, over marketed as being cool, sold on credit mainly to those who cannot afford such inflated prices, sold to bubble proportions and now that everyone has one, you may find it difficult to get rid of :



Next we have a one month view of the DOW. Note the overbought daily stochastic and how last Friday’s close above the upper Bollinger didn’t hold – they almost never do, and here we are back below 9,000 again. Slightly higher volume on the down day too, remember that volume confirms price, but we were expecting the volume to start picking up, weren’t we?



Next is a one month daily of the SPX. Today’s candlestick is a near perfect example of a “spinner.” Spinners are a marker of indecision. In this case it resulted in basically a sideways move that got it back beneath the upper Bollinger. Again, the stochastic is overbought, and the chart pattern resembles that of HOG.



So, are we going to rally to the moon or would I short HOG here. Well, the moon is definitely out of the question, but shorting HOG, and every chart that looks like it is not, but I’m not there yet. We still have the weekly stochastic on buy signals and not overbought yet, and the daily slow stochastic indicators are not fully there yet either. There are select issues that I would short, and am short, but I’ll wait to cover those until we have the entire market headed in the same direction again – that’s when the most money can be made.

Nate

PS - to all you Harley owners, YES, I am biased, see photo below – lol, now there’s a REAL bike (okay, I'm a sucker for a Harley too, just NOT the leather chaps - what the heck is with that anyway, some sort of a cowboy fantasy?)!