Friday, January 16, 2009

End of Day/ Week 1/16

Well, I would summarize that close as somewhat bullish on a daily basis, but much less than bullish on the weekly. Huge down week on the XLF, and for the transports. It seems that the gloss is coming off the financials once again.

For the day, the DOW finished up 68 points (.8%), the S&P was up .75%, the NDX gained 1.24%, and the small caps in the RUT gained .8%.

Notables are the XLF which lost 3%, BAC down 13.7%, C down another 8.6%, JPM down 6.2%, WFC down 7.3%, OPY was UP 9%; and outside the financials, gold rose $23, IYR and REITS rose 3.7%, while the VIX was down 9.6%.

Market internals were mostly positive with advancing issues nearly 2 to 1 on the positive. New 52 week lows, however, are still bearish. Bank of America, for example, set a new 14 year low today.

So, fundamentally I see a corrupt and immoral financial system showing its true colors again – in other words, it’s ugly, and the underlying math is relentless no matter how hard they try to hide it. The math just keeps coming back to haunt. I’ll say it again – until the debt clears, as in gone, the market cannot fully recover. With all attempts to hide the bad math, the actual underlying math only gets worse.

From a technical perspective I see a lot of mixed indicators, a lot of strange candlesticks (possibly opex weirdness), and a headache from staring at the charts all week! Seriously, there’s a lot going on here, so I’m going to throw a lot of charts up. Those not into the technicals… well, I can see your eyes rolling back already, but those who depend on them will see a lot happening at least in the short term, so bear with me.

While I’m thinking of it, I want to mention that I’m working on upgrading my site to one that lands you on a home page (same color scheme) with headlines and is broken into sections – one of those sections will be for market updates, another for technical articles, another for general articles and economic stories, and another for my personal full length articles. I think that will be nice because you can skip the technical stuff and market updates if you’re only here for the macro picture, and visa versa.

The revised site will have some other advantages, such as when you click on an article or update you will be taken to its own page that will have the dark background as a frame, but will have a white background with black lettering to make reading easier on the eyes. I don’t like too much light and some people don’t like reading the white letters, so I think this will be good for everyone. look at to see how they deal with it – my look though, will not be anywhere near as busy as that! Another advantage of that layout is that page loading will be more quick because you won’t be pulling up my last 10 posts with all the pictures and videos. It’s still a little way out there, and I’ll be working on it this weekend, so if you have comments or suggestions on what you’d like to see, please leave a comment here or email me, thanks.

Back to the technical landscape… I’m sure you will be hearing all the pumpers (who earn a living directly or indirectly from selling you something) talk about how we didn’t break down to new lower lows and how that’s a positive thing. This is just plain old silliness, just like the B.S. I was hearing on CNBS today… things like oil collapsing in price is a good thing… CPI being negative is only about energy and it doesn’t show deflation! Yeah, okay, sold to them! They do not understand what’s happening, they certainly didn’t see it coming, and remember who they work for!

Here come the charts, let’s start by looking at the ugly stepsister, the financials! Here’s a three month weekly XLF chart. It’s bearish looking as heck, no other way to read that. Note that as you look left to right you see decreasing volume as it went up, and now increasing volume as it goes down. Look at the weekly stochastic and RSI, they are both turning back down and the stochastic is in danger of moving to a sell pretty soon if the selling continues. I want to point out that the P&F chart for the XLF has a target of $5.50!

Next let’s look at a one month daily of the XLF. Here, too, we see increasing volume as the selling progressed until today and it was slightly lighter. Today’s candlestick does not look like a reversal, you would expect to see a spike in volume and some sort of hammer, reverse hammer, or doji and that’s not it. That said, the oscillators are oversold, but my slow has a little bit further and note that the fast is just crawling along in oversold territory:

Financials are clearly still an anchor around the neck of the entire market. A sustainable rally is not possible without their participation.

Here’s a one month daily chart of DOW. That’s a fat bodied doji on about equal volume that would seem to confirm higher prices – the opposite of the financials. However, note that the volume over the past week was coming up in general while the market was going down in general. It would look like a reversal, but it’s not anywhere as strong as previous reversals we’ve seen in this bear market. Once again, the oscillators are rolling up off the bottom on the daily time frame:

Next, take a look at the DOW 3 month WEEKLY. Here is a chart that looks like it has just broken down out of its sideways pattern much like the XLF weekly. Two down weeks on increasing volume. Are we done?:

The daily picture is about the same on the SPX as it was on the DOW daily, so let’s look at the 20 day, 30 minute chart of the SPX instead. Here we can see what was a down trending channel has turned into a smaller uptrend channel. Note the possible double top at 850ish… that is present in all the index charts tonight and looks particularly double ‘toppish’ on the NDX. I may be wrong about that, but the potential for that is on the table, especially with all the stochastic indicators overbought, or nearly overbought, from the 5 minute, to the 60 minute time frames. The 850 area is also a pivot point. IF this is the beginning of wave 2 of 5 down, I would expect a retrace most likely to the 61.8% level which is now up at 895. If it’s the beginning of wave ‘c’ up of ‘B’ up, it’s off to an awfully weak start. We’ll see… Tuesday will give us a lot more insight:

While I said that the SPX daily chart looks like the DOW daily over the past couple of days, the corresponding ETF, SPY does NOT. Take a look at that daily candlestick. That is an odd one because it is a hammer in clear air, meaning that the body of the hammer is not against the previous candle’s body. That would normally be a reversal indicator and if at the bottom of a descent might indicate a bottom, but at the top of an ascent would indicate a top. Well, that is a two day ascent. Is it a reversal indicator? If I look back on this chart for previous examples in the past year, I find one in almost the same relative spot – the end of descent, but second day rally – on the 8th of September. What followed? A big red down day. Note the falling volume here which is different than the indices:

Okay, well that’s a mystery, let’s look at the DOW’s ETF, DIA. Here is the same exact candle and lower volume as well. Hmmm… the plot thickens:

How about the Q’s? Same thing, big old black hammer, falling volume.

And here’s the corresponding chart of the NDX. Again, big tall black hammer. It’s an ugly thing. Prior examples? Look at the one on the 18th of November. What followed? A bearish engulfing big old red candle. How about the 19th of September? Same candle towards the bottom of a decline followed by a big sell off:

Strange hammers, do we see them anywhere else? YES! In a couple of strange places. IYR produced one on its advance today and here’s a chart of SRS, the 2X inverse of IYR. I just want to show what the inverted version of that hammer looks like. Here, it looks even more like a reversal indicator to me. Second day of a decline on lower volume, hmmmm…:

The next odd one is found on the 20 year bond, TLT. Below is a 3 month chart that should look familiar if you read my article on bonds. This morning prices gapped back down into the channel, popped back up to the old rising channel and failed there, then subsequently fell back down into the channel again. That’s the odd movement that produces hammers. Now, this one is odd in that the other bond charts did not produce the same type of candlestick. AND, if prices were to reverse on this hammer, it would GENERALLY mean that stocks are declinging, which would be confirmation of what all the other hammers are saying. Hmmm… now we have an enigma. Oh, and that 3 peaks and a domed house pattern are back in play should bond priced continue to go down (against what the hammer is saying)! Very interesting, I can’t wait to see what happens. I did not re-short TLT, although I know a cool cucumber who did on a retest of the upwards channel. Note that the down day today came on slightly higher volume:

For another piece of the riddle, let’s look at the VIX. Below is a 3 month daily. You can see the new uptrend that clearly broke the prior downtrend, and today the VIX plunged and broke the current uptrend. That, I would consider bullish for stocks. And look at the stochastic and RSI roll over. That said, Tuesday will be the tell because if you’ll notice it landed right on support at 46 which held:

It’s a mystery to me… the day felt bullish, but strange as the financials were falling apart while the rest of the market tried to rebound. Does that sound familiar? Isn’t that how the prior sell offs got put into motion, with the financials leading the entire market down?

So, there’s weirdness underlying the financials, the rest of the stocks, and even the bond market. It “feels” strange to me, like we’re at a turning point that may not be what most people think. Those hammers are talking, are we listening?

Next week is Obama’s big week. Do the masses feel frightened? Do they feel full of HOPE, or are they figuring out that he’s adding to the bad math, possibly setting the market up to disappoint?

Frankly, I think that people across the entire globe are getting a funny feeling in the pit of their gut driven by the realization of what a financial mess the banks are really in. You might say that the sentiment is shifting, like it is the end of the innocence.

Don Henley – The End of the Innocence:

Might as well get Don Henley up here while I’m in that Eagles mood… ;-)