Wednesday, January 7, 2009

End of Day 1/7

It’s been a while since I’ve “seen” a day as clearly as I saw this one, both with the overall market and with the plays I had going, like HOG.

The DOW finished down 245 points (2.7%), the SPX finished down 3% with the /ES pinging right off the 900 level, the NDX finished down 2.8%, and the RUT lead the way again while losing 3.4%.

Fundamentally it would seem that everyone is worried about jobs. The weekly update comes tomorrow and the monthly on Friday. Now that the ADP report has scared everyone, this COULD turn into a BUY the news event?

So much for DOW 9,000! Is the selling done for now? That sure is a monster red candlestick, it closed just a whisker below last Friday’s open basically engulfing the past three days, and note the HIGHER VOLUME on the day. Volume confirms price, and look at the daily stochastic and RSI roll over out of oversold:

Basically the same picture on the SPX, but it did manage to close above last Friday’s open. It landed right in that 900 area which is strong support, so I would expect at least some retrace tomorrow, probably before resuming the move lower. The 890 area would seem a likely destination if this is a wave ‘b’ retrace, that would be the 61.8 retrace and it’s at the 50 day moving average. Break 890 and we’re probably doing something other than wave ‘b’ of wave ‘c’, but a move down to 870 wouldn’t be out of the question either.

The XLF was a disaster, losing 5.2% and rejecting solidly beneath the 50 day. No way the market’s moving higher unless the XLF can get above, and stay above the 50dma. I note that today was on slightly lighter volume here. (I also note that the DIA and SPY were also down on lighter volume).

Here’s another one to watch, the transports. It lost over 4% today on higher volume and looking like there’s lots of room below:

TLT is an enigma, but it’s looking very much like the classic bubble formation “3 peaks and a domed house.” Google it to learn more (basically the right side will initially mirror the left but then turn into a parabolic collapse). If that’s what’s happening, we should make a right shoulder here for a couple more days and then move lower. If you remember, I got short very near the top, but stepped out of that position. I plan on re-entering soon, probably early next week. The “boys” (and I mean that as in children) over at the Fed had better hope that’s not what’s happening, because if it is, money is not leaving bonds just to be hanging out in equities, it’s getting the hell out of the way of the insanity at the Treasury department. And if that’s what’s happening, we’ll be watching rates go up and equities will eventually take the next leg down. That IS EXACTLY what happened during the great depression which Bernanke is trying so desperately to avoid and is so unwittingly helping to create.

Let’s look at HOG once again. I played that about as perfect as can be… scaled into it and was the low buyer right at $20 yesterday, then I sold the second 1/3 of my position exactly on the 61.8% retrace line. I sold the first 1/3 for a 59% gain, and the second for 100% gain. The third, and some, is on the house. That’s what I try to do every time, but it certainly doesn’t always work as well. Mid day it began to ramp and I was pretty sure the 50% retrace line would hold the advance and it did, subsequently collapsing down to the 61.8% level. It may rebound some tomorrow, we’ll see, but the easy money has been made for now.

The short term oscillators say that some rebound is possible tomorrow, it should be an interesting end of week. Overall I’m still thinking this is NOT the start of a major leg down, but it sure could be, and that’s why I did not go long at 900 today, although I know a lot of people did.

Hey, keep the big debt picture and math in the forefront of your mind. If you went long yesterday, your fiat dollars are going…

Down, down, down into a burnin’ ring of fire!

Johnny Cash, Ring of Fire: