Friday, January 23, 2009

End of Day/ Week 1/23

The day started down hard and made what proved to be the lows of the day right after the open. Shortly thereafter, Polosi & Company came out talking about bigger and faster stimulus – oh boy, where have we heard that before? Frankly, I’m hearing tons of bullish talk about how we’re going to be able to stimulate our way/ print our way back to economic growth, but I’m here to tell you that it’s just not going to happen. Thus the market is setting itself up for disappointment.

I won’t be surprised that, when we do finally get a big Obama bailout on the table, it turns into a sell the news event – again. “But maybe it will be so massive that it’s 3 times larger than anyone expected!” Well, in that case, I’ll simply short the bond market, wait about 12 hours for the drugs to wear off, and then I’ll short the stock market! LOL, you can’t help but see the humor in their attempts – it humors me to no end that people still think they can create changes that will somehow defy economics, math, and gravity. I actually give defying gravity higher odds, but that’s just me.

Anyway, the markets did stage a comeback of sorts, the DOW only finished down 45 points, the S&P finished UP .5%, the NDX lead the way and was up .7%, while the small caps managed to gain .3%. Of note, the transports lost another 2.2%, and the XLF gained 3.3%.

The internals were slightly positive today with advancing shares slightly ahead of those that declined – volume was nearly two to one bullish. Diverging bearishly, the number of new lows, however, grew over Thursday with nearly double the number of new lows on the NYSE. Looking around the data and the charts I see several small bearish divergences (NDX), but I also see some small bullish ones.

Gold broke out above resistance today. Here are a couple of P&F chart showing the breakouts on XAU and also GLD. Note the new higher targets. This is not a trade that I have on at this point as it is counter to my current deflationary hypothesis, and I have learned not to play counter trends in that manner. BUT, I will note that so far this year gold has outperformed handily and may very well continue to do so for a time:

XAU:


GLD:


As you can see on the 10 minute SPX chart below, I ditched the triangle I had drawn as we broke both below it and above it today. Instead, I drew a smaller top line. You can see that we have a series of lower highs but slightly higher lows. The blue line at the bottom is a trendline coming up from the November lows. If we were to break higher, it is conceivable that the lower trendline would combine with one off the last high to produce a triangle. Could be, that’s what McHugh is thinking, but I’m not sold. Note on this chart that the last RSI peak is quite a bit lower than the previous one, while prices were nearly equal – that’s a small bearish divergence:



When we go over and look at the same timeframe on the DOW, it doesn’t look so much like a triangle as it does a descending channel. It is narrowing slightly which could be bullish, but I think we’ll have to give it more time to see. This chart I did not redraw today and look at how it banged down to the bottom, went all the way to the top and was rejected again. Here and on the 30 minute chart the stochastic is midrange again. The 60 minute is mid range on the DOW but overbought on the SPX:



Here’s a one month daily chart of the DOW. It produced a red semi-hammer/doji on slightly lower volume, but again it looks different on the DIA. Note the fresh buy signal on the daily stochastic here. ALL the indices produced those with my settings today. While that is a bullish signal that cannot be ignored, sometimes it will turn up like that and then turn down again if we are in a flat or triangular pattern:



Here’s what the DIA candle looks like on the daily. As you can see, once again we have a completely different candle. Again, the difference is the way in which they handle the opening gap. Here it was on higher volume. I’m not going to cover the SPX and SPY tonight, but they are both notably different as well (interestingly on the SPY there was lower volume on an up candlestick):



The Transports look the weakest overall. Here’s the daily, it made a new recent low today and is very close to breaking the pin lows of November. No, I don’t buy that we are set up for a Dow Theory non-confirmation. This must close below the LOWS of November, not just the closing lows:



Let’s do something different and look at a 20 day chart of the Major Market Index, one of the biggest and most broad index there is. I have not polluted this chart with my drawings… and what do we see? I see a large move down with a big descending triangle at the bottom of that move. Five lower highs in a row with a base at about 895. How would I expect that to resolve? Down:



Sometimes it helps to pull back and look at the broad market like that because different segments can have bearish or bullish slants… but when you put them all together it’s telling the bigger market story.

Last, let’s look at a 20 day chart of TLT, the 20 year bond to check on its progress. This chart basically encompasses the right side of the head and right shoulder if you remember from my article Bond Market Hide & Seek – A Domed House & 3 Peaks.... Here the big blue flag produces a target that is all the way down at the 100 level. When we dig into the latest decline I can spot what appears to be a 3 wave movement down into this morning’s lows which is followed by a small flat. That sure looks like a wave 4 forming. Note that wave 1 was about 5 points, wave 3 about 7, and if wave 5 is equal to wave 3, that would place it right into the 100 neighborhood. I do note a positive RSI divergence here as you can see by the short red lines:



Overall, I note that we are still producing a series of lower highs. On the DOW and Transports we’re also making lower lows, but on the other indices we’re making higher lows. Triangle, flat, whatever you call it, we’re still in the same range as the past few days and it still looks like a wave 2 to me. There are technicians who believe that we’re going to break out higher… I’m still leaning bearish, but can see it both ways so again do not want to do anything too large until we break out of this range in one direction or the other. One thing’s for certain, change will be coming soon.

And look for changes to my website soon too. I have the developers attempting to create a better and more readable layout. It may not work exactly like I want, but it sounds like it will be close. Hey, sometimes change is good!

David Bowie - Changes


Have a great weekend,

Nate