Thursday, February 5, 2009

End of Day 2/5

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Okay, I’m going to keep this one fairly short… (or not)

On the day the DOW finished up 106 points (although it *felt* like a thousand – lol), the S&P gained 1.6%, the NDX is experiencing its second coming and finished up 2.4%, while the small caps in the RUT just didn’t draw as much attention as tech (for what reason I do not know) finishing up 1.5%. The XLF reversed hard intraday and managed to finish up 1.6% - BAC put in a hammer bottom on high volume while gaining 3% on Ken Lewis’s doubling-down on his insider buying (how’d that first batch work out?). Seems like people all around are acting a bit desperate…

Internals were positive by about 2 to 1 on advancing issues, and volume was slightly better than 2.5 to 1. I’m not sure if we satisfied the McClelland Oscillator’s signal from yesterday or not, but I’ll find out tonight and if it’s significant, I’ll let you know in the morning.

As far as tomorrow goes, the release of the unemployment numbers will be everything. Is the market expecting a disaster and have that priced in already? Sure doesn’t seem like people fear it much by the way the past several days in the NDX went. The VIX couldn’t stay over 46 and closed at 43 and change… elevated, to be sure, but is it commensurate with what’s happening on the jobs front? I DON’T KNOW. We’re going to find out tomorrow, and I think that makes all the charts I’m about to show you a moot point.

But let’s look anyway.

Starting on a 20 day, 30 minute SPX chart I see an RSI divergence as annotated by those red lines. The peaks in price are almost level, but the peaks in RSI are lower… that’s a bearish divergence – albeit a small one on a short time scale. Note the green channel lines… we touched the top one but failed to break it. Note the 30 minute stochastic – overbought, meaning lower prices tomorrow are likely, and the 60 minute is likewise overbought. Note something else interesting on this chart… see the dark blue lines that crossed yesterday above the candles? Those lines are from the beginning of the triangle back in October of last year, and they finally crossed but we are in the same old area, 4 months later.

Here’s a six month chart showing where that triangle originated (sorry for the busy “working man” charts. BTW, if you look at the SPY chart and see that giant hammer, it’s a bad print):

And just because I haven’t shown a clean looking chart in awhile, here’s a daily SPX with all the garbage turned off so you can see that there is still a clear triangle/ pennant pattern in play:

Next is the one month chart of the DOW. This candle looks a lot like all the others except for the NDX. Higher volume day, but again, generally lower prices and generally higher volume on down moves as a whole – although this is obviously looking pretty much like a triangle or flat. On the daily stochastic, my settings have yet to produce a buy here, but have on all the other major indices:

Next, let’s check out the risen one, the NDX. That is one big candle, with a massive 50 point range. Ran right into resistance at 1,250 which is coincident with the upper Bollinger. Note how the daily stochastic is almost overbought already, that’s just plain old diverging from the rest of the market. It did break that blue line which would correspond to the green channel line on the SPX and is a breakout higher. But is it just a throwover? Also note here that the green 50 day average is now upsloping, that’s pretty bullish, as is completely engulfing yesterday’s tombstone doji, which obviously did not verify a reversal of the uptrend:

All that said – if I could see nothing else in the market, I would think we are about to go to the moon based on all that. So, let’s look inside the NDX at the 20 day, 30 minute chart. Again, we see the breakout above the upper boundary, but look at the RSI and compare the red line there to the prices up above. That is a very substantial bearish divergence, one that should not be ignored. It is, however, on a short time frame and correcting it may not mean a huge move is required. Also note the overbought stochastic indicator that just issued a sell signal by having the fast cross below the slow:

Be careful if you are long GLD here… another outside hammer was posted today right up near the same resistance line as the last one. The last one did confirm, gold prices fell nearly $50 an ounce in the next two days, but as you can see jumped back up. Maybe it’ll make it back above resistance if it keeps trying, but beware of outside black hammers, especially in sets that could produce a double top:

Overall, because everything is moving sideways in a triangle it is very confusing to people. One day we see an upright Head & Shoulder pattern, the next day it morphs into an inverted H&S pattern. The truth is that unless you are very quick at catching corners, playing inside of triangles or sideways patterns is an account robbing experience. I’ve managed to do well recently, mainly on the back of my larger bond market plays.

And to sum up the media, our government, our President, and all the Pigmen out there… all I can say is grow up, possess and demonstrate some morals and ethics, stop acting like children, understand and take care of the math, and stop acting like a gang of desperadoes…

The Eagles – Desperado: