Wednesday, January 21, 2009

Morning Update/ Market Thread - 1/21

Good Morning,

Quite the inauguration festivities yesterday. I tried to be enthusiastic about it, really… but watching the global financial industry and stock market tank at the same time left me feeling as if we were throwing one last really good “Bankruptcy Ball!” I mean why not throw another $150 million into the fire? It’ll make everyone feel better, right?

Meanwhile yesterday’s rout was the largest inauguration day decline in the history of the markets. And remember the old axiom, “as goes January, so goes the rest of the year?” Well, I have the DOW down more than 1,000 points and the S&P off 125 points… how’s it looking so far?

Don’t worry, though, nothing to see here, move along and remember that there’s always hope.

And the futures are up this morning with IBM beating on earnings and their stock up nearly $4 a share despite revenues that were down and a little tiny note buried in their report about their pension fund being under funded by OH, ABOUT 50%! But hey, if people want to own that, they are certainly welcome to. And the entire market feels hope over that situation despite the fact that Ericsson announced they are laying off 5,000 people and BHP is laying off 6,000.

Nothing to see there, the DOW futures are up about 70 points and the S&P are up about 10.

The markets did land on a support area there at 805 on the SPX yesterday. And the short term oscillators, as I said, are very much oversold, so what most would call a relief rally is very possible. I would likely call it wave 2 up of 3 down of 5 down (or it could be on a lower level too). Now, not everyone agrees with that count, and it’s just one possibility. This is a game of odds, and yesterday’s action placed that count higher up in Nate’s way of looking at the charts. Yesterday was very bearish, and I think it’s very likely that we may be destined to be lower sooner than later.

But don’t bet the farm on that, I’m not. There’s another likely scenario in which we build a triangle with higher lows and lower highs – that’s what McHugh is thinking and I certainly wouldn’t bet against him, however, he and several others who I follow have been having to adjust their thinking into more bearish scenarios. We won’t know for sure which count is correct until we break the November lows.

By the way, Richard Russell came out yesterday and said that we have a potential DOW Theory non-confirmation because the Transports closed below the November closing lows and the Industrials did not. I mentioned this and provided charts yesterday, but I don’t play the little game of closing lows and pin lows… that game is for others to play, if it offers them warmth and comfort, that’s nice for them. For me, the deal is not done until the Transports close beneath the November lows. Then it will be confirmed when the DOW closes, or not, below the November lows. You can believe what you want.

Just looking at the charts this morning, it looks like it’s possible that we run to about 822 in the short term or maybe a little higher this morning as we work off those oversold indications, and it could very well be that we are in wave 2, so we could retrace a considerable amount of yesterday’s decline.

The financials are bouncing a little, gold is down, bonds are down pretty strongly again (watch closely), and I see the dollar in what appears to be a triangle. Watch the dollar too, if it breaks up, look out in stocks…

Below is a chart with the XLF after hours action, and on the right is /DX, the dollar futures and the triangle that is about out of time and just broke lower (good for equities). I also see a potential bear flag on the /ES… should be an exciting day, the oscillators need a break and IBM may have given it to them, but the banks are ultimately going to set the direction:

Btw, the economic reports are very light this week, obviously we have earnings, and later this morning we have the State Street Confidence index (no biggie), then tomorrow Redbook and Store Sales, Housing starts and Jobless claims on Thursday.

Please use this thread for comments below, I’ll be putting updates here. Show us your best charts, and your thoughts here too, the more eyes on the market the better.