Thursday, January 29, 2009

Morning Update/ Market Thread 1/29

Good Morning,

Stocks were just plain overbought and the oscillators finally exerted enough weight to make it descend back down to earth… OR you can blame the Jobless Claims that rose to 588,000 which is higher than expected, again… or you could site the fact that Ford lost ANOTHER $5.9 billion in the 4th quarter which adds up to ONLY $14.6 billion for the year – but hey, they don’t need taxpayer help, I’m so proud – but not believing they will survive any more than GM or Chrysler… or you could blame the 3,000 people who Kodak just slashed… or the 28% decline in profits at Shell… or the fact that Sony reported a loss… or you could blame the pork laden new “bailout”/make the math worse stimulus plan that just passed the House… or you could blame the weather. Take your pick, really, that’s how the people on TEEVEE do it.

Clearly, that’s why the DOW is off nearly 100 points and the S&P is down 10. Of course the daily tsunami of piss poor underlying fundamentals usually don’t bother the stock “professionals” that are paraded on CNBS – neither does the math of debt.

Or, is it a Fibonacci and oscillator thing? You get to decide, but all I can say is that the stochastic was way over bought on all time frames up to 60 minutes and here we are.

I was looking over my now crowded charts (since we’ve spent so much time in this range), and noted that I’m now working with four sets of Fibonacci retracements levels that’s turned my working man charts into something that looks akin to a K.D. gone wild Fibonacci party.

Let’s start on the 10 minute timeframe so that we can pick out some targets in case we break that wedge bottom. First note that we are going to open around 858 on the /ES which is about 862 on the SPX which puts us just above the wedge bottom and the 23.6% line. If we break that wedge, the 38.2% is at 850… the 50% is at 841, and the 61.8 is at 832, any of which could stop the decline and will stop it if McHugh is correct in that we are in wave ‘c’ of wave B. If so, then this retrace may be the beginning of the second wave of potentially five. Of course, we could be working on the end of wave 4 instead – I do not know which! And, I do not favor one count over the other, but I will say this – when I bet against McHugh’s count, I usually lose money!

Now, let’s back out and look at a 30 minute chart… here you can see the next set of fibs and can see that we nearly tagged the 61.8% retrace of the latest down wave… that makes this a classic turning point. Note how the 38.2 here aligns with the smaller 38.2% near the 850 level:

Next, let’s zoom out to the 3 month view. Here’s our third set of fibs showing the November peak to the November bottom that McHugh has labeled as wave 5 down of A, and we have been inside of for the past 3 months. Note that yesterday’s candle stopped EXACTLY on the 50% retrace line of that move! Hmmm…

Now, let’s zoom out some more and we’ll find our fourth set of fibs that begin on the top of what we now consider the start of wave 3 of A. Note that the 23.6% line here is coincident with the 50% line from the November highs that stopped yesterday’s move cold. Hmmm… the plot thickens. That is a VERY imported spot… if we are in wave 4, that could very well be it. It’s not going to be it if we are still in wave B. That makes what happens from here important in my mind.

McHugh has a triangle that could take us a little bit above 900 and then back down – that could very well be happening, I don’t know yet. In the short term, I will play short a break of that wedge below about 859 on the SPX and see were that takes us. Then again, we might stay in that wedge and just keep on trucking… “Flexibility is the key to air power,” or so they told me in the Air Force!

Play smart, and have a great day,