Wednesday, February 4, 2009

End of Day 2/4

Big swing day! Following the ramp job in the NDX this morning, the DOW caved 232 points from its high and closed under its pennant bottom and under 8,000 again.

At the close, the DOW had lost 121 points, the S&P lost .8%, the NDX with a NASTY reversal closed down only a fraction, and the RUT lost 1%. Once again, the XLF lost 1.1% and was led down by Bank of America which lost 11.3% and closed at $4.70. Funny, but within minutes of it breaking below $5, Ken Lewis (CEO) was on the tube talking about all the positive signs he sees in the first month of the new quarter/year. I LOVE the fact that his pump attempt only lasted seconds and that traders saw this attempt for what it was and continued to sell. That’s what happens when people hear the same old lies over and over. High volume day on BAC, though…

The other side of that coin is that I’m disappointed investors didn’t slam GS for their little stunt this morning. Good luck raising that Tier 1 capital boys, I hope you don’t get it if for no other reason to leave your salaries capped! Couldn’t happen to a nicer bunch of criminals.

The internals were about what you would expect, except that the NASDAQ was much weaker internally than the flat close indicated. Bonds were down AGAIN, with TLT breaking to new lows and the TNX breaking to new highs.

Okay, enough well wishes for the bankers, let’s move onto the charts and start with a 10 minute chart of the NDX. Nice double top there! That was a very strong retrace, getting nearly 100% of the last move before collapsing back down to the 61.8%. Wave 2’s are known for deep retraces, they are meant to fool you and can retrace up to 100%. The NDX came close, but not the other indices, (the SPX hit the most common wave 2 ending point, the 61.8):

This action produced a very nasty looking toping candle called a gravestone. Gravestone candles show that buyers controlled early on, but that sellers took control and managed to reverse the day. Gravestone candles require confirmation… and gee, I think we may have it with CSCO’s report. Below is the NDX daily, and below that is the after hours action of Cisco and the NDX futures:

If that weren’t bad enough, the NASDAQ, which I showed that hammer on yesterday, produced a gravestone right on the 50dma and once again failed to close above (note the very appropriate bear grim reaper for the NASDAQ!). This did invalidate that hammer, but an open lower tomorrow will validate that gravestone doji. And, if THAT weren’t bad enough, over on the Q’s there’s a big black gravestone doji on the upper Bollinger on much heavier volume. This is a chart of the NASDAQ:

Next we have a 5 minute chart of the SPX. The fibs don’t show here, but we touched the 61.8 and closed under the 38.2. Here you can see that we created a bear flag. The target on that flag on a break lower is 813ish.

Next up is the DOW daily. For once, the SPY, DOW, DIA, and SPY candles all look reasonably the same – and pretty darn bearish. The trend of lower prices and higher volume continues. The DOW broke beneath its pennant bottom again, but the other indices have not. A break downwards from its little flag would target 7,760, which you can see would get us below the prior lows with only the November lows to go:

What else is there to say? I’m pretty bearish after that reversal and now seeing CSCO melt down after hours I’m even more bearish. By the way, my daily stochastic flipped to buy on the ramp this morning, but after the sell off that went away and left the daily stochs on a sell. We go into tomorrow with the 10 minute stochastic mid range, the 30 minute fast oversold (but the slow mid range), and the 60 minute fast nearly into oversold (but the slow barely out of overbought and pointing straight down).

This entire thing still looks like we are working on wave 5 down to me. If so, we just finished wave 2 up of 3 down of 5 down today and started wave 3 of 3 of 5. If that’s accurate, tomorrow should not be fun for the bulls. And it may not be accurate… wave B is still a possibility until we break those November lows.

So, all the attempts to “save us” have failed. The markets still languish with nearly 50% losses even after all the bailouts and all the talk of putting in a bottom. Only a few of us have been on the right side of the trade and have stuck to our story. Mostly they are the people who understand the math and the underlying debt. The markets are sending a signal, they need the debts to clear and they need a little more honesty!

And you thought Billy Joel wrote this song for Christy Brinkley? Oh no, he wrote it for the Central Bankers from the markets!

Billy Joel – Honesty: