Friday, February 6, 2009

End of Day/Week 2/6

Definitely a black candle day today despite more horrific employment data. The market is “looking through it” or “already had it priced in” or we are “in the process of pricing in the stimulus/bailout/big bang” that’s coming on Monday. Take your pick of teevee favorite excuses; it was definitely a day that was painted black.

On the day, the DOW gained 217 points, the S&P jumped 2.7%, the NDX rose 2.6%, and the RUT was in the lead, as it usually is, by gaining 3.4%. The XLF was really looking forward to the bailouts/distortions/moral hazards and rewarded those betting in the casino with a 7.5% gain.

Internals were very bullish today with advancing issues over decliners by 5 to 1 on the NYSE and about 4 to 1 on the Nasdaq. New lows fell substantially and volume was 91.7% on the advancing side. Those 90% up days are significant, especially if we get another within the next 3 trading days. Who knows, perhaps Big Bang Monday will produce one? Hey, the very scientific poll on my blog is saying 7 to 1 that Monday will be a big bust, so if we view that in the same light as a put/call ratio, perhaps it’s truly bullish and we’ll get that 90% up day Monday!

Let’s start on the charts by looking at a 3 month weekly. Remember last week that I pointed out that inverted hammer… well, we got an up week that followed. Volume was pretty good, too, slightly higher than the previous week:

Now let’s zoom into a 30 day SPX chart were we see an ascending triangle in red, and that we are slightly below a complete retrace of the entire last wave. There are a couple of ways to count this, but I’m not going to go over them here as it would take a while. Suffice to say that if you think there’s only one possibility, you would be wrong. Again, we are still in that overall large triangle and playing inside them can be very difficult. As far as the stochastic goes, we are overbought on all timeframes up to 60 minutes. Today was a good reminder that they can stay overbought (or oversold) for quite a while. The oscillators are HISTORY indicators, BUT if you want to put the odds on your side, you will short when they are overbought and go long when oversold – obviously. We managed to close above the 850 pivot area and that is now support. The next longer term pivots above are at 912/13, and then 935. If you look real closely on this chart, there is a small gap that’s open just below 930:

Next I want to take an internal look at the NDX on a 30 day chart. Here we are very close to a 100% retrace which opens up the possibility of a double top. Note the open gap on this chart that was filled today. There is a fresh sell signal on the 30 minute stochastic and on the NDX all stochastics are now overbought all the way up to the DAILY chart. If you look at the RSI on the bottom of the chart, you will see that there is a pretty sizable bearish divergence in place with the last peak lower than the previous, but the price much higher than the previous. This is also true when you look back nearly a month at the last peak… again, although we are equal in price, the RSI is lower:

Now let’s look at a DOW daily. Very bullish candle and good volume, but not progressively more than yesterday. On the DIA and SPY volume was lower today than yesterday. The DOW is still way below its 50dma and note the rapidly descending upper Bollinger which would provide additional resistance if the DOW were to run that high. We do have a buy signal on the daily stochastic, but are still on a sell signal on the weekly:

Next is the DOW’s P&F chart. It broke higher, reversing the last sell signal and producing a bullish target of 9,250:

Next up is the P&F for the transports. They also broke higher producing a higher target. Have you seen that the Baltic index has been advancing? Don't get too excited, when something has fallen 90% leaving only 10%, then a 50% move of what's left is only like 5% of its previous self. The rest of the indices were already on buy signals, thus the consensus in the P&F world is that higher is in the future:

Now let’s look at the SPX daily. Again nice candle that ran into the 50dma and stopped. 850 was an important hurdle, now you can see resistance at 880, and then at 912. Here, too, the upper Bollinger is pointing down pretty sharply. Usually the steeper it is, the more resistance it offers:

Here’s a chart of GS, just to show those interested that there’s an outside hammer on the upper Bollinger band and in overbought conditions. The other financial don’t show this, it’s just a pigman central thing. I wouldn’t be long Goldman on that… oh wait, come to think of it I’d rather own an all tobacco and oil portfolio than to let one share of GS touch my account (unless I’m short that is – lol)!

Since I brought up that NYSE Advance/Decline line divergence last week, here’s a current chart comparing the A/D line (red/blk) against the SPX. Remember that the A/D jumped over the SPX on this chart and the gap was getting wider. Today I note that the gap between the two has, in fact, narrowed slightly but is still divergent:

Overall, a good week for the bulls in equities, but they are being suckered by interest rates and the bond market. My short bond position has been a nice play for quite awhile, remember that most people don’t realize what’s happening until most of the move is over. The TNX broke to new highs today…

Market moving economic data will be light next week. Monday will be a lot like today for me in that it is all going to be news and sentiment driven on big bang bailout dreams. I believe this news gets sold at some point, I’m just not sure exactly when. The market’s overbought short term and needs a rest.

And did you hear? Heck, the NDX is UP for the year, don’t you know (is that saying much)? CNBS was SHOUTING IT OUT, but they neglect to remind people that it’s down 73.5% since the year 2,000 or 42.4% since Oct. 2007… shhhhh

I’m sure that no matter what happens on Monday, the tape will be painted to suite the likes of Goldman and the direction of their bets. Today there was no question. It was a day they painted black…

The Rolling Stones – Paint it Black: