Monday, January 5, 2009

Morning Update 1/5

Good Morning,

Welcome to the real start of the trading New Year! I expect volumes to be increasing this week over last.

Futures are down this morning, with the DOW off about 100 points and the SPX looks like it will open down about 14 handles.

This morning we get two economic reports. The first is auto sales. Please see the chart below, last updated in December as this morning’s data is not available yet. Note the bars which are total sales and how precipitously they have fallen. It’s hard to get inflation out of sales like that!

Next is a chart of construction spending which also comes out later this morning, but you can clearly see the trend from this chart (again, you will not see inflation here). Note that this chart is in percentages and remember that percentages compound on each other:

Tomorrow is Factory orders, Non-manufacturing ISM, and Pending home sales.

Steve Jobs, CEO of Apple, says that his weight loss is due to a hormone imbalance. Believe him? I hate to say it, but if you hold Apple stock at this juncture, you are almost literally gambling on Jobs life (not to mention that over indebted Americans will keep buying over-priced electronic gadgets they don’t need).

Obama is pushing for a direct $300 billion stimulus via tax cuts. While this IS a step better than GIVING money to the banks, it nonetheless does not and will not help the math situation. In fact, the latest headlines all say that Obama want to cut taxes (nation’s income) and increase stimulus (spending). That’s a very simple math equation that drives another nail in our economic coffin.

From a technical perspective, I believe we probably finished 5 waves up last Friday and we are now correcting that move a little. Remember, I took a small short position right at the close on Friday, and I’m going to cash that in once the 30 minute stochastic fast reaches oversold. That was not meant to be a long term play at all.

We closed Friday with the 60, 30, and 10 minute stochastic in overbought territory. Again, for me, once the 30 reaches oversold, I’m out, and then am going to look to take a long entry. That, too, will be a short term play when I do it as the daily stochastic is approaching overbought. And, there’s a possibility that the rally does not continue. Remember, I do not like playing counter trend moves in general, and the trend is still down despite the 3 months of sideways action we’ve encountered.

I would look for support here in the 918 area, which we already hit and bounced off of, and next would be the 912 pivot. If that gets blown, and it may not, the next pivot down is at 848 but I doubt this makes it that far and there are a lot of potential support points prior to that, like 905, 900, and about every 5 points on down. So, I do not expect a huge move down, this looks to me more like a correction, probably a wave ‘b’ correction that follows wave ‘a’ up of ‘c’ up. A 23.6% correction of the move is at 917 which we already reached, a 38.2% correction is at 905 (a likely destination), or the 50% is at 896.

20 day, 20 minute chart below, note the overbought stochastic and Fibonacci retracement levels.

Little bit of a rally just prior to the open, best of luck to your day, I’ll have more later.