Thursday, February 26, 2009

End of Day 2/26

Right from the beginning of the day the bad economic news rolled out, one thing after the other – none of it good. How can it be otherwise with the math the way it is? Government intervention is not only too little too late, it’s at the root of the problem. It would also seen that the love affair with Obama is coming to an end as people begin to see that his budget is huge compared to his income and that he has already established a reputation of over promise and under deliver.

As a result, the DOW finished the day down 88 points (225 points off its high), the S&P gave back 1.6%, the NDX caved for 2.9%, and the RUT stayed weak all day finishing 2.1% down. Financials were relatively strong, but that fantasy will not end well, sorry. I laughed each time they reiterated on CNBS how the BKX was up 35 to 40% from the lows and has climbed the most ever in such a short time. I just wish they would teach these guys simple math…

Internals were only 8 to 7 negative on the NYSE but 8 to 5 on the Nasdaq. Volume was about the same relationship but there were ZERO new highs today on both.

I was thinking that just too many people were bullish earlier and then I saw that the put/call ratio fell to .68… that cinched it for me and I added short. Below is a one year put/call chart followed by a 3 year. You can see that readings this low are quite rare. We were just down at this reading a few days ago, and here we are again. Before that it had been more than a year. What happens is that everyone is convinced things are going higher so their money is already to work and there’s just nothing left to push it still higher… then down she goes! Once again proving that the majority of participants MUST be wrong when the reading get to the extremes – it’s simply a function of math:

1 year Put/Call:


3 year Put/Call:


If you’re following the daily market thread, you would have seen that I posted those charts just before this last decline really got going. It’s a team sport, whenever you see extreme readings, let us know!

On the bullish end of the sentiment spectrum the VIX fell low enough earlier in the day to trigger a bearish target on the P&F charts. I’m discounting that target unless I see us break that level again as it barely broke support and came right back up. If it breaks that level again then I believe it.

On the 10 day, 10 minute SPX chart you can see that we broke the blue wave 4 triangle. I think I see a clear EW count, so follow along – I generally don’t number the waves on my charts… The low 3 days ago was the end of wave 3 of 3 of 5 down. We then climbed up inside the triangle for wave ‘a’, went down for wave ‘b’, and then up to the top of ‘c’ yesterday just prior to the close and that’s where we began wave 1 of 5 of 3 of 5 down. Follow? If so, then this morning’s rally was wave 2 and we are currently in wave 3 of 5 of 3 of 5! I think this morning was, in fact, wave 2 as if you look on the NDX or RUT, this morning’s high was not nearly as high as yesterday’s – follow? That should leave us with whatever is left of 3, then 4 and 5 of 3 of 5… then a wave 4 up/sideways that should last about two weeks to equal the length of wave 2 time wise. That should be followed by wave 5 of 5. Wave 5 of 3 can be any length, but wave 1 of 3 was 65 points and wave 3 was 100 points. If wave 5 equals wave 1, then the target would be about 715, and if it equals 100 points it should reach about 680. It can truncate, so be wary of wave 5’s. While we’re here, let’s note that the short term stochastics are already starting to get oversold on the short time frames. Of course 741 is the key level to break here:



Zooming out to the one month daily, we find a pretty bearish candle. No, that is not an inverted hammer it is more of a solid body on the SPY. It’s funny, but the stochastic did trigger a buy today with my stochastic settings. They are still oversold, so they can cross again and stay oversold. Note that there is now plenty of room for further descent with the lower Bollinger. I note that the 768 pivot held again, and the next lower long term pivot is at 734 then 717:



Same thing happening on the DOW. Today was a lower volume day, but internally the volume was light near the highs and heavier on the declines:



Again, I do not believe that’s a true inverted hammer on the DOW as the DIA is not anything like it.



When we look at where all the money was hiding out, the NDX, we find that the higher they are the harder they fall. That is a nasty engulfing candle that closed on the exact low of the day and is only a fraction above the pin low from the 23rd. Look at how hard the bottom Bollinger is curled down to get out of the way:



The Transports are just a disaster and have been leading the market lower. Keep in mind that they are a leading indicator. They broke down to new lows nearly a month ago and have been dropping ever since:



Did we see a high for the XLF? Possible, but there is a small gap that doesn’t fill completely until about $8.80, so that black candle may or may not be a top. I’ll assume it is if the rest of the market is going to complete wave 5 like I think it will:



For those brave enough to play with gold, here’s a one month of GLD. The blue line is the major support it broke above earlier and here is the retest with an outside hammer right on support. If you were going to get long, today was the day as long as you use a stop just beneath that blue line. I did NOT go for it, but if it makes it back to the green 50dma later on, I will:



Overall I think the markets were telling Mr. Obama what they think of his budget and over promise/ under deliver style. Talk is cheap, it’s actions that matter and substantive change is MIA. I’ve been saying to everyone that will listen that’s it’s too little, too late, now the market is saying the same thing. Not my usual style of song, but the lyrics are very appropriate, just picture the love affair with Obama so far… you’ll get the idea:

JoJo - Too Little Too Late:


ALTERNATIVE ENDING:

Overall I think this “rally,” market/casino, heck, entire money system were destined to fail from the beginning. Same goes for Obama and his entire over promise/ under deliver administration! From the beginning I thought there was just too much bullishness - when I saw that put/call ratio below .70 I saw epic fail… from the beginning:

Emerson, Lake & Palmer – From the Beginning:


Hate to waste a good song title, but couldn’t resist.

Cast your ballot “funny” if you really like JoJo music

Or, click “cool” if you’ve liked E.L.P. from the beginning – LOL

Click “interesting” if you really have no idea what that EW count I described means!