Wednesday, February 11, 2009

End of Day 2/11

From a technical perspective, today was about what I expected following yesterday’s 97% down day. Usually the market needs to at least pause to digest a move like that, and this gives the oscillators a chance to reset and for market participants to determine whether or not they really meant that sell off (guess what, I think they meant it – I know I did!). Today was looking even more bearish until the bought and paid for politicians voted to hand out taxpayer money like it’s going out of style! And OH BOY, we actually got two 5 minute green candles for your $789 billion! Oh, and about 37 cents onto the XLF... niiiice!

But like I was discussing with the Doc, I’m sure that had we not spent the trillions we would already be at an SPX of 500, to which he wisely responded, “Yeah, it’s kept us from 500, but at the same time ensured that we’ll eventually hit 300!”

So much wisdom in such a young General!

All I know is that I am truly sick and tired of talking about this dang triangle/pennant! Mentally, I’m already at the bottom of this thing and about half way back up to the top (ahhh… that would be about a decade from now)! Hey, sometimes you just have to walk the long and winding road.

Today the DOW gained 50 points, the S&P gained .8%, the NDX LOST .2%, and the RUT gained .5%. Despite the CEO “grilling” by CONgress, the XLF managed to gain back nearly half of yesterday’s losses, up 4.8% (on much lower volume).

Speaking of that testimony, I can’t let that go without saying that it is obvious to me that the people in Congress are completely outsmarted by the gangsters running the big banks. I actually did hear a couple of tough questions, but they were sidestepped and whenever the heat gets turned up, the speaker moves it along. What I believe is happening is that those 8 men in that hearing today are absolutely in control of the money supply that those politicians live for. Of course they’re not going to ask the tough questions or demand that REAL and lasting change come by throwing their rears out into the streets.

Personally, I would love the opportunity to ROAST those piggys for about two days straight! They would be char broiled by the time I was done. But my questions wouldn’t just be directed at the bankers, they would also be directed at the Congressmen. The conflict of interests are astounding, again, I think it would be a great idea to completely separate corporations and State.

Internally, advancing issues were about what you would expect, slightly positive. I do see an interesting anomaly in the internals though… first let me note that the Nasdaq was up .4% today while the NDX was down .2%. What’s odd is that the Nasdaq volume was 13 to 8 on the DECLINE side despite the positive close. This tells me that very few issues were carrying that index, it is a bearish divergence.

The flip side of that is that the VIX closed down 4.5% which was almost as much as it gained yesterday. It also managed to close below 46, at 44.5, which means that 46 becomes overhead again.

Let’s start on the charts by looking inside the SPX over the past 30 days. Note how prices fell from the early January peak down to the 800 level, bounced twice into the 880 level and that each bottom is following the pennant bottom up. The more time we spend chewing away at that bottom, the more likely it is to break, BUT it is pretty strong support, that’s for sure. Notice the green down channel… we threw over the top of that channel but fell back into it yesterday and were unable to escape it today, even after agreement was reached on the stimulus bill… We interrupt this market update to bring you a word from our sponsor –

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Back inside our chart, please note that the stochastic is just shy of being overbought on the 30 minute timeframe, but is just coming up off oversold on the 60 minute timeframe. Thus, the market is probably not ready yet for a serious leg down, but note that we went basically no where and worked off a lot of the oversold condition. If you look real closely on this time frame at the RSI, you will see that the low on the 10th is lower than the low on the 30th of January, yet the price is higher. That’s a slightly bearish divergence, but it conflicts with a slight bullish divergence on the very short timeframe within the past two days:

So, let’s look at the 10 minute SPX, and while I’m talking about the RSI, notice that on the last peak of today that the RSI was slightly higher than the previous two peaks, and if you look at the last low of today and compare that to the low point of the RSI on the 10th, then you will see a positive divergence. This tells me that we may see a little more upside on the short term before seeing more downside, most likely after the 60 minute stochastic returns to overbought. It may need a day or so for that. Of course, the oscillators can return to oversold and stay there, too. Note the blue channel lines that look like a bear flag. If it is, we may overthrow the top and then return back inside, then break down. Or, we may just break down. If so, that flag is worth about 50 S&P points and would target the 770ish area:

Now let’s look at the daily. Here you get a sense for the fact that today was simply a corrective pause of yesterday’s decline. Note the sell signal on the stochastic:

Here’s the DOW daily. Same as the SPX except the DOW is weaker and is below the red pennant line. It also pinned the lower Bollinger and will need some time or force to bend that band downward. Note the lower volume on the retrace… that is not indicative of a reversal, it is indicative of a pause:

The NDX produced a big range doji candlestick that indicates either indecision, or a possible direction change. Note the fresh sell signal on the stochastic, and we produced a sell signal by closing above the upper Bollinger band and then closing back beneath it:

Here’s the gold ETF, GLD. Crossing that blue line was a major breakout, and it did it on very heavy volume. Yes, I went long with a small position, but will stop out on a close beneath that blue line. The move is overextended a little already, so caution is advised. AND, I must warn you that being long gold goes against my thesis of deflation as the result of the collapse of credit. During every credit collapse, gold has been punished… BUT, it may very well be that THIS TIME may be different (always raise your bullshit flag when you hear that!). Dang, after putting it that way, I wish I wouldn’t have done it! It was small and I know how to use stops!

Here’s one thing that gives me pause, and that’s the hammer on the transports. For confirmation, I swing over to look at IYT and there I see a much bigger head that’s partially occluded by the previous candle. In other words it doesn’t look so much like a potential reversal signal on IYT. Also, the volume is much heavier on today’s candle, unlike this chart of the trannies:

Here’s another chart that gives me a little pause… That’s IYR, it has a very clean (but shadowed) hammer that was produced right on the lower Bollinger band. It was not on heavier volume, and again is shadowed, but it is in a position to be a potential reversal indicator. Of course, the XLF and the rest of the market will probably go higher for IYR to go higher, so this candle is in conflict with the rest of the market but should not be ignored:

Here’s your bonus chart of the night, the XLE (energy sector). When I looked at the weekly chart, I couldn’t believe what a perfect triangle/pennant was formed there, even more perfect than the rest of the market. I stuck the SPX behind this chart to show that it’s actually behind the rest of the market a little, but when I do the same thing with oil, it more closely matches the SPX. A break downwards out the bottom of that pennant would produce a minimum target of about 30, and a likely target of only 10! That would be disastrous, and for that to happen, oil would have to be in the $10 to $15 a barrel range. I’m not calling for that yet, but if the SPX pennant and this pennant break down, look out:

The weekly jobless claims number comes out in the morning along with retail sales and is followed by business inventories. Consumer sentiment is released on Friday.

Boy, it sure seems like we’ve been battling this bear market a long time already. After the market closed I jumped on my motorcycle and sped through the winding back roads into town to run my errands – that is always uplifting and freeing for me, the same way that flying used to be. When I got back home and sat down to write this update I had a tune in my head. Right away I knew that my mood and the market’s refusal to reflect underlying fundamentals illustrate that the journey to the bottom is going to follow the long and winding road…

The Beatles - The Long and Winding Road: