Tuesday, January 6, 2009

Morning Update 1/6/2009

Good Morning,

Futures are up this morning with the DOW up about 40 points and the S&P up about 7.

The ICSC store sales for last week came in a little better than expected, only being down .8% year over year for that week, which showed that the post holiday shopping was actually a little stronger, relatively speaking, than the pre-holiday weeks.

A lot of data comes out at 10:00 Eastern today, Factory orders, non-manufacturing ISM, and pending home sales. Tomorrow’s data is very light, but we get weekly unemployment on Thursday, and then we get the more important (but very inaccurate) monthly figures of the employment report. I just don’t see how there can be anything good there.

In the news, more, more, and still more stimulus, always more stimulus – and Obama is certainly jumping to take the lead in this role. Too bad, I had hope, but his actions are simply making the math that much worse. Toyota announced they are going to shut their factories down for an 11 day hiatus, Cigna is going to slash 1,100 workers, Logitech is going to slash 15% of its workforce, but don’t despair if you are looking for work, the FBI is looking to hire some 3,000 new workers! Hmmm, we already have more than 50% of the workforce working either directly or indirectly for the government, and don’t get me started on Freedom versus Security: My MONEY 'tis to thee....

Okay, the technicals were talking to me yesterday when I noticed that the sideways action looked more like wave 4 than a ‘b’ wave correction. If so, it means that wave 5 up is next, and here we are with a higher open. And, yesterday’s up/down action produced a small movement on the McClelland oscillator which means a large movement is coming either today or tomorrow. It doesn’t tell us which direction, however, and keep in mind that there’s data coming out a half hour after the open.

If wave 5 up is about to happen, it’s probably going to be a significant little rally. I don’t know how far it will go, but the upside is limited by a couple of things. First of all, we are already up into the upper Bollinger band. Yes, movement higher will force that band up and out of the way, but having money on something that’s outside of the Bollinger is not for me, in fact my best contrarian plays come from that situation. I’ll be looking to get short on the top of wave 5.

Another limit to the rally is the stochastic. The fast is already overbought, needing only the slow to join it. Yesterday’s action on the RUT seemed to be limited by both these things, and it produced a hanging-man candlestick in protest.

So, if there is a surprise, it will be to the downside as it seems to me that too many people are bullish for the underlying fundamentals. I’m not going to short yet, but we’re getting closer. Take another look at the HOG chart in yesterday’s end of day report… you can see that the end of November rally produced 4 up days, then it moved sideways, then it produced 4 up days. We’re getting close to being symmetrical time-wise. Same with the major indices, here’s the last two months on the DOW… note that the late November rally produced 5 up days, then a large sell off. We’re getting close to being symmetrical time-wise there too.

By the way, Harley just announced this morning that their CEO is going to retire in ’09 and their stock shot up nearly a buck in the pre-market – see, that’s the type of short entry I look for – above the Bollinger, WAY above the Bollinger, time for a nibble there.

So, my best Elliott Wave count is that we need wave 5 up to finish wave ‘a’ up of ‘c’ up of wave ‘B’. Once wave 5 up completes, I would expect a wave ‘b’ down that will be followed by another wave up. That should be just enough to convince more people to toss their fiat money into the game to be sent back to the ether from which it came!

Have a good a day,